The focus for manufacturing operations in the consumer packaged goods (CPG) sector is changing. Where plant efficiency was the top priority before, this has now expanded to include agility – both of the plant and the wider supply chain.
In the past, the goal of digital investments was to improve cost efficiencies with overall equipment effectiveness (OEE), considering the main key performance indicator (KPI). Even when supply chains became global, further increasing the risk of disruptions, manufacturers protected plants from variability with inventory, so that they could continue to focus on efficiency. However, the pandemic fundamentally challenged this way of working. The speed at which it was able to disrupt global supply chains has been an unprecedented stress test, and one we are still in the midst of. There’s a new story about shortages caused by supply chain disruptions almost every day.
COVID’s effect on the manufacturing world simply amplified existing vulnerabilities, and as much as we might want to go back to how things were, this appears unlikely. Last year, a World Economic Forum (WEF) report identified four permanent shifts of focus that have come from businesses dealing with demand uncertainty and disruptions. At the top of that list is agility and customer centricity, closely followed by supply chain resilience. These are now core topics in the post-pandemic recovery discussion, and manufacturing plants play a critical role in responding to today’s rapidly changing market conditions.
Enabling agility through digital 'sense-&-response'
Built with real-time operational data, digital twins can help understand what the plant is 'capable-to-promise', by providing real-time situational awareness via edge-to-enterprise visibility. Furthermore, the digital twin provides the foundation for Artificial Intelligence (AI) and predictive analytics to provide powerful insights that empower workers to optimise processes & throughput. To respond effectively to supply chain disruptions that are occurring on almost a daily basis, capabilities like advanced planning and scheduling can align the plant with supply chain planning to quickly adapt to fast-changing situations. Improving the plant-to-supply chain linkage gives the business more options to respond by looking holistically across the 'source-make-deliver' processes.
Enabling agility through empowered workers
A connected business, with access to information anywhere and at any time, increases agility and enables manufacturers to respond to the challenge of today’s dynamic markets. Coupled with knowledgeable & empowered workers (who are the ultimate drivers of continuous improvement and resilience), businesses can really push the boundaries of their agility. Indeed, a key factor for future manufacturing operations improvements is collaboration of people & systems. Digital transformation makes information more accessible to employees, connecting them to plant processes, data and systems as well as other workers across functional domains & functions, developing a living repository of staff knowledge & experience. Cargill’s CIO, for example, recently talked about how enabling connected workers led to the company’s organisational walls coming down and subject matter experts rose up. Effectively, the right people came together, he says, adding that he was pleasantly surprised that such a large company could be so agile.
Businesses cannot control incidents that occur across the wider supply chain, but having agility and resilience allows them to adapt quickly. By taking steps to improve the supply chain, companies are better positioned to make the right decisions when issues occur, as well as gather data around long-term trends & patterns to become more agile & resilient in the future.
Simply put, in light of the pandemic, global CPG companies faced a do-or-die supply chain paradigm shift. And those businesses that lag on redesigning processes for a new age of rapid supply shocks and uncertainty ultimately risk losing revenues on unforeseen cost burdens, such as downtime, employee absenteeism & empty shelves.
Death of the old supply chain model
Let’s take a deeper dive into how value chains of the future are evolving for the new normal world. Let’s start by looking at the typical value chain structure. On the demand side, marketing and sales sought to better understand their customers and worked with R&D to create (or acquire) the right products. On the supply side, the supply chain team orchestrated procurement, production and distribution to source, make & deliver those products.
For decades, this arrangement was the order of the day. The predictable consumption patterns and stable networks allowed businesses to tightly adhere to an optimised plan of product quality, quantities and timing – keeping the cost of production as low as possible. To manage supply chain variance, companies would implement a standard inventory buffer which responded to replenishment signals, maximised factory utilisation by ‘sweating the assets’ and implemented just-in-time vendor/product replenishment strategies. But in the pandemic world, this decades-old model has cultivated brittle supply chains. Amid a new and morphing era of sharp shocks, such as port delays, supplier disruptions and changing consumer buying habits , companies have learned that efficiency (eg, just-in-time inventory, full utilisation, etc) can come at a cost if the system is unable to absorb these shocks. Today’s unpredictable business world demands greater agility and resilience.
Towards agility and resilience
So, how should we think about agility and resilience? A useful metaphor can be seen in world-class athletes. When it’s time to compete, top competitors unleash their maximum performance and operate at the outer, exceptional fringes of human capability. But this level of output cannot be sustained 24/7 without damaging the body. So, as well as agility –which is evidenced in the ability to perform – athletes, like businesses, must cultivate resilience. It is resilience – the ability to withstand shocks and the unknown – that protects the asset and allows it to perform over the long-term. And like a muscle, resilience is crafted through careful performance strategies and training. Together, the qualities of agility and resilience represent the backbone of any high-performing athlete – or business entity.
In essence, an optimised training programme allows companies to perform at maximum capacity when needed, without damaging the business. Agility allows companies to perform at the highest level, while resilience enables businesses to protect themselves. The very same organisational muscles that lend speed also help companies to avoid any catastrophic injury.
The training programme
Foundational: Information, relationships and cash
Operations: Time, inventory and capacity
Customers and suppliers: Segmentation and price
In a recent AVEVA survey, we asked several CPG companies two questions: What happened in your business in the pandemic? How could you have prepared if you knew ahead of time? The answers are revealing and uncover the essence of what it means to be an agile and resilient business. The majority of respondents said they aimed to match demand and supply in a more predictive, prognostic and profitable way through digitisation. CPG leaders also said they would be more mindful of operating under vastly different and changing conditions using different strategic levers.
Unpacking the pain points of the pandemic
The pandemic unleashed a new legion of market forces and supply chain challenges. According to our survey, the changing business landscape highlighted the following pain points (listed on the right.) For example, we summarised the experience of a large consumer goods manufacturer:
Workforce challenges: During the initial lockdown (March to May, 2020), up to 30% of the workforce chose to stay at home without pay, leading to significant scheduling challenges. Upon their return to work, employees resented management teams due to the fear of risk of COVID transmissions. Meanwhile, on-demand temp workers were less skilled and more prone to making mistakes. What’s more, maintenance contract workers sometimes were unable to enter the plants to fix the errors.
Supply demand mismatch: In some areas, product demand shot up by 50% during the pandemic, leaving suppliers with shortages of up to 30%. This surge led to a scramble for new suppliers and materials, leading to onboarding, compliance, ERP and capacity issues. Plus, logistics services were disrupted, leading to serious transportation challenges. Businesses were forced to seek new distribution methods, only to face new operational obstacles when loading /unloading goods.
Revised priorities and needs: The primary business priority evolved to become the workers’ health and safety. Engineering resources were diverted to testing, HVAC and sanitisation. Companies realised the importance of building real-time visibility into asset status. Businesses also built in additional reporting around staff absences, COVID-related issues and vendor status.
Corrective action plans
So, what actions did companies take during this tumultuous time to ensure the survival of their businesses? First of all, organisations realised the criticality of timely information and a fluid & responsive supply chain. More companies turned to complete digital transformation to enable a supply chain without fatal delays or disconnects. CPG leaders also realised the importance of enabling a flexible workforce through skills rotation, temp training and automation assistance. Another critical – and possibly fatal – pain point to be addressed was the ‘bullwhip effect’ –where one delay reverberates and lengthens as it travels along the value chain. To counter these delays, leaders tore down walls across the network to better collaborate with their contract manufacturing partners. And began to stratify their factories by role, such as launch products or flexible lines, and conducted overall network & inventory assessments.
To counter the pain point of segmentation, companies are also working harder to symbiotically align markets and categories with demand. Instead of leveraging sales and marketing to drive unlimited demand, CPG leaders looked to match supply and capacity. Businesses also looked to carefully raise prices amid government intervention. And crucially, companies chose to spend and invest in digital initiatives for future resilience. CPG leaders no longer view saving cash as the key objective – avoiding future cash haemorrhages through resilience planning, and investment is now paramount.
The holistic shift
Following the pandemic, companies are being pushed to redesign their supply chain design principles in a holistic manner, allowing for factories, suppliers, vendors and distribution centres to work together in an integrated, flexible fashion. There is a marked move away from linear, silo-based thinking to network-based processes. Businesses endeavoured to carry out more frequent and systematic reviews of overall operations. They also committed to co-manufacturing and tighter integration & strategic alliances with partners. Above all, CPG leaders are now realising that information and relationships is the lifeblood of their supply chains. The investment mindset is also shifting from cost reduction to cost avoidance. In many cases, a singular supply chain is no longer enough. Businesses are increasingly opting to embrace multiple supply chain responses based on factors, such as customer and product segmentation.
In crisis, there is untold opportunity
Global business has a long and rich history of adaptation. While the latest iteration of business challenges came in the form of lockdowns, social distancing and uncertainty, companies have historically faced curveballs, such as product lifecycle, security, information velocity, sustainability & last mile logistics. Nevertheless, each wave of change in the last century has pushed businesses to elevate performance and ability – whether that’s selling more, cutting costs, cutting emissions or reducing defects & downtime. Today, the global business community stands at a precipice of unparalleled opportunity in the face of change. In crisis, there is opportunity, and the pandemic is no exception.
CPG leaders that embrace today’s new era of agility and resilience are well positioned to raise the bar on business performance – for employees, customers, suppliers and the bottom line alike. By shifting to digital-first, holistic thinking, companies can dually springboard performance and futureproof their businesses. Technology providers are here to offer guidance and have the tools to help CPG manufacturers along their digital transformation journeys. The right trusted partner can help discuss how digital transformation could improve one’s business’ agility and resilience, and help him/her to become better prepared to navigate today’s changeable manufacturing supply chain landscape.