IBM Business Consulting Services

Play big: The consumer packaged goods imperative

deeper
An IBM Institute for Business Value Futures Series executive summary

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The IBM Institute for Business Value develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. Clients in the Institutes member forums benefit from access to in-depth consulting studies, interaction among a community of peers and dialogue with IBM business consultants. This paper is a part of an ongoing commitment by IBM Business Consulting Services to provide forward-looking industry and business points of view, and to help companies and industries transform their futures. You may contact the authors or send an e-mail to iibv@us.ibm.com for more information.

Contents 1 Growth is dead and retailers win 3 The emerging CPG environment 9 The transformation blueprint 9 Play big inuence 16 Conclusion 17 About the authors 17 About IBM Business Consulting Services 18 References Anna S. Thats pulling no punches. Frederick K. I think he may be right. Growth is dead for OurBrands and the entire CPG industry. I had an encounter with a shopper last night in my local WorldMart store that may very well sum up the state of our business. I noticed a shopping cart piled high with WorldMart-brand products detergents, facial lotions, cereals, milk and a variety of WorldMart prepared meals. Then, I saw my own daughter, Nicole, walking down the aisle. This cant be your cart, I said. It was. Anna S. You must have been speechless. Frederick K. I was stunned. I see youve bought WorldMart detergent, I said. Yes, she responded, it does a good job cleaning, and its cheaper than OurBrands detergent. But you grew up on OurBrands detergent, I exclaimed. Then she laughed. Come on Dad, you know theres no difference between OurBrands products and any of the other brands out there theyre all the same same new ingredients, same coupons, same bonus packs. I interjected, But havent you seen our advertising spots that explain how OurBrands detergent has special activated ingredients? You know what she said? If I did, I didnt remember them. There are too many ads out there, and I dont have the time to think about them all that long. Anna S. So much for our media plan! Frederick K. Then she said WorldMart makes her life easier by giving her great service and a great shopping experience. It has childcare facilities, food consultants, cooking classes, a delivery service, live entertainment, and an education and community centre. Can you blame her for thinking that WorldMart is thinking about her as much as OurBrands?

The unfolding scenario: Growth is dead and retailers win

Scene: It is 2007, in the ofce of Frederick K., CEO of OurBrands, one of the largest global consumer packaged goods companies. With him is Anna S., his vice president of marketing.
Frederick K. A big fund manager just phoned to say hes liquidating a position in our stock hes held for over a decade. Your growth potential is dead, he said.

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Anna S. I have more discouraging news. Yesterday I went on our account call to WorldMart. We presented our plans for new initiatives in the detergent category, our planned increases in advertising spending, and next years product upgrades. But they didnt listen to a word we said. First they hit us with a $50,000 ne for late shipments, and another $250,000 for mislabelled pallets. And because our new yogurt line-up didnt move as much as we predicted, they demanded that we pay for the revenue shortfall. They said that for any new distribution we would need to compete in an auction for the slots, pay revenue guarantees and give them the same price all over the world. They nished by letting us know that they really didnt care about the detergent category. Rather, they were working on their home cleaning solution centre, and when we had products and services that were appropriate for their concept we should give them a call and schedule some time to meet. Frederick K. This scenario has been emerging for years. If wed acted sooner, we wouldnt be in this mess. But we didnt and here we are!

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The emerging consumer packaged goods environment

The reality of 2007 might be that growth is dead and retailers have won. Manufacturer consumer packaged goods (CPG) brands are likely to become commodities as retail mega-chains take a controlling share of consumer mind, wallet and life. Today, the CPG industry is mired in a marketplace where: Top-line sales growth has slowed to a crawl Most product categories are mature in developed countries Clutter rules brands, SKUs and messages overload consumers Consumer spending and attention are moving from CPG products to other products and services The ability to capitalise on growth in emerging markets is rife with difculties Retailers are consolidating into global powerhouses Retailer store brands are emerging as a key retailer growth strategy Viable alternative channel options have yet to emerge.

Industry self-perceptions are fostering complacency

Complacency in the industry reects a striking gap between self-perception and reality. CPG companies see themselves as creative and insightful. But do CPG companies really have their ngers on the pulse of their consumers? Are they really driving to nd the best ways to source ideas, and to develop and deliver products and services that resonate with them? Lots of activity, but few breakthroughs Little true innovation is emerging from the industry. The emphasis has been on the quantity of activity rather than breakthrough thinking. For example, in the U.S., the number of new product introductions doubled from 1991 to 2001, to 32,000.1 However, just 7% of launches in 2001 were considered innovative.2 Activity without innovation means saturation. The real dynamic in food, beverage, household, personal care, alcohol and tobacco products has become one of stealing share of stomach, throat, washloads, teeth and babies bottoms. Importantly, there has been a dearth of new products that dene entirely new categories of products. Eighty percent of new brands year-one sales are below $10 million and only 3% are over $50 million.3 Additionally, an analysis has shown that over half of new products introduced in 20 categories failed within two years of introduction.4 To what extent can CPG companies recapture their air for real innovation?

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Spotlight on Asia-Pacic and Latin America: Supply chain challenges hinder growth In the Asia-Pacic and Latin America regions, the CPG value chain is fragmented and signicantly less efcient than in North America and Europe with varying levels of infrastructure and ways of doing business. Most noticeable is the durability of the traditional small, family-run retailers. The layers of distribution required to service these channels impose higher costs of inventory, transportation and credit and has created a balance of power that favours distributors over manufacturers. Distributors have developed strong local networks and strong relationships with retailers, and many distributors also own manufacturing plants and sell their own private label goods directly to retailers. Regional

CPG products are losing share of mind with consumers The slowdown in the world economy has resulted in slower growth of consumer spending, with an expected compound annual growth rate of just 3.9% through 2006.5 Consumer goods share of total spending has declined from 17% in 1980 to under 12% in 2001.6 CPG companies share of voice has become signicantly muted: CPG companies were responsible for about 45% of U.S. measured media spending in the mid-1980s, but this declined to just 19% in 1999.7 To what extent can CPG companies recapture share of mind with consumers?

The CPG allure is fading Abraham Maslow envisioned human progress as and local brands still hold strong positions in the regions, one in which a hierarchy of needs are satised. Most and successful market entry of manufacturer brands is CPG products are now taken for granted: human increasingly difcult. desire and expectations have moved into the realm of the emotional, the aspirational and the entertaining. The challenge for the industry is to nd a path that leads to greater consumer importance, or to accept marketing increasingly familiar and less-satisfying items. CPG companies argue that many aspirational benets are built into their brands equity and value. However, CPG brands are not the most valuable in the global market. Coca-Cola is the only consumer packaged goods brand among the top 10 brands worldwide, and only one of eight among the top 50 brands globally.8 The fading CPG allure is also reected elsewhere; not one CPG company falls in the top 10 of the top companies desired by MBAs.9 And only ve CPG companies rated in the top 50 of the worlds most respected companies.10 To what extent can CPG companies recapture lost pride?
Figure 1. Share of consumer spending.

CPG(U.S.) Share of total spending*

18% History Forecast 17% 16% 15% 14% 13% 12% 11% 10% 1980 1984 1988 1992 1996 2000 2004

Services(U.S.) Share of total spending

65% 60% 55% 50% 45% 1980 1984 1988 1992 1996 2000 2004

History Forecast

*Measures total consumer expenditures on food and alcohol at home, non-prescription drugs, toiletries, cleaning supplies, paper products and tobacco. Source: U.S. Department of Commerce and Retail Forward, Inc.

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Retailers are gaining the upper hand

CPG manufacturers view retailers as an impediment because they effectively control all aspects of traditional CPG distribution: new products, breadth of line, number of facings and store placement. Retailers control pricing, promotion, the consumer point of sale and all the information gleaned from the transaction. Retailers have also become adept at their own positioning in the marketplace. The result has been smarter merchandising, improved in-store experience and shrinking space available for CPG products. Retailers are fuelling momentum through global expansion Retailers are gaining global scale faster than CPG companies through expansion and acquisition. In 2000, the top 10 players generated 33% of the top 100 retailer sales, up from 28% in 1996.11 Wal-Mart, the worlds largest retailer, has increased sales outside the U.S. to 17% in 2000, up signicantly from 5% four years earlier. Carrefour, the worlds second-largest retailer, is the largest retailer in Argentina, Italy, France and Spain. Royal Ahold grew from the worlds twelfth-largest to the fthlargest retailer through acquisition and aggressive investment.12 Retailers are demanding and A growing list of retail demands getting more Deductions With increased retailer scale has come Slotting greater power, and growing demands on Penalties and charges manufacturers. Increased demand by retailers Service requirements for trade marketing funds is the most costly. Global pricing contracts Trade spending now accounts for 61% of Global or regional promotions a typical CPG manufacturers marketing Custom products budget, the second-largest P&L expense P&L contribution requirements. behind cost of goods, and represents about 16% of gross sales.13 As a result, traditional brand-building activities are squeezed. In spite of the investment, nearly 80% of CPG companies fail to track and measure trade fund performance adequately.14 Retailer store brands are threatening manufacturers brands The increased strategic importance of retail store brands and private label (also known as own label) goods is also signicant. Retail store brands now compete with and outplay manufacturer brands on both quality and price.

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Store brands and private label are more protable for retailers, and successes have been achieved across channels in a wide variety of categories. Wal-Mart, for instance, has leveraged its Sams Choice and Equate brands across multiple categories. Reports indicate that the chains private label programme in diapers has overtaken the combined size of Procter & Gambles (P&Gs) Pampers and Luvs brands.15 Retailers have an inherent advantage in amortising brand goodwill over a broader category of products. How can CPG companies counter this natural advantage? Retailers are playing a strong brand marketing game In an effort to further build sales, some retailers have combined quality improvements with commensurate brand marketing expertise. Sainsburys implemented a brand management structure to its private label product line to manage its brand portfolio strategically, and to bring a focus on speed, innovation and quality to the new product development process. Sainsburys products include the Blue Parrot Caf line targeted to children, the Be Good to Yourself line for health-conscious consumers, and Taste the Difference.16 Other premium store brands have captured market share and higher prices. Both Kroger and Safeway (U.S.) have built up a huge infrastructure to support their private label programmes, each with more than 40 manufacturing facilities. CPG manufacturers now are not alone in developing strong packaged goods brands. The growing marketing sophistication of retailers means that price and quality are no longer the clear differentiators between store brands and manufacturer brands. CPG companies must raise the bar for their own brands, or begin playing by a new set of rules.
Figure 2. Top ten retailers worldwide sales and share of top 100. $700 30.0% $600 $500 $409 $400 $300 $200 $100 $0 1986 1996 1998 1999 2000 $160 20% 15% 10% 5% 0% 40 30 20 10 0 United Kingdom Belgium France Spain Netherlands Germany Italy U.S. Supermarkets 27.7% 28.2% $524 $480 25% 50 45% 36% 29% 24% 22% 21% 13% 20% 31.4% 33.1% $573 35% 30% Figure 3. Private label share by country. 70 60

Top 10 Retailers' Sales ($Bil.) Share of Top 100 Retailers Sales

Source: Company Annual Reports and Retail Forward, Inc.

Source: PLMA: (2000 Unit Share)

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The transformation blueprint

Hope is alive for those CPG companies willing to transform themselves through aggressive, focused action. Real, sustainable growth can be achieved and retailers can be successfully managed. But this transformation will require CPG companies to understand where they are, where they need to go and what they will need to do to get there and then to act. A model can be used to visualise the level of inuence CPG companies have with their consumers and retailers. On the vertical axis is Importance to Consumers, which measures importance in consumers lives, market share, consumer loyalty and perceived differentiation. On the horizontal axis is Degree of Leverage with Channels. Below for example, is Degree of Leverage with Retailers, which measures the ability to resist price degradation and promotion, the retail prot contribution, and the manufacturers margin. Different positions on the matrix require different combinations of strategies to maximise shareholder value. Step one: Measure current positioning with consumers and retailers An analysis needs to be done for each brand and category within each channel before looking at the overall position. A detailed review will lead to differing brand and channel strategies. The aggregate plotting for a given CPG company illustrates how it is positioned with consumers and retailers. Many companies will have business portfolios that straddle different quadrants on the model. Importantly, the centre of gravity for most CPG companies has moved toward the lower left-hand quadrant, Growth Is Dead, Retailers Win, because of the declining consumer importance of their brands and the shifting balance of power to retailers.
Figure 4. Play big model.

High Brand brilliance Play big

Importance to consumers

Growth is dead, retailers win

Service leader

Low Low
Source: IBM Business Consulting Services.

Degree of leverage with retailers

High

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Step two: Determine which potential strategies and position(s) maximise shareholder value The winners will be those that drive sustainable competitive advantage and have the organisational ability to execute ruthlessly. A companys ability to deliver value will largely depend on its ability to implement its view of the future, which will require identifying: The revenue potential of its present and pipeline product portfolio within each potential quadrant The relative margin that can be extracted by its portfolio within each potential quadrant The investment required to migrate individual brands and the overall portfolio to a more favourable position Its ability to develop or capture the required competencies to operate efciently in its target area The potential response of competitors and those areas where competitive pressures will be greatest. Step three: Prioritise the investments and capabilities needed to achieve and maintain the desired positioning Each quadrant has its own rules and not every company can play in the same space. Trying to succeed with the wrong model wont work. CPG companies will lose if they deploy cost structures or investment strategies inappropriate for their current positions. Companies must prioritise the capabilities they will need to achieve a desired positioning. For example, a company must develop world-class customer service and supply chain capabilities to compete effectively in the Service Leader quadrant, and a company must develop alternative consumer channels and breakthrough new products and services to compete effectively in the Brand Brilliance quadrant. Step four: Develop an operating model that enables the fulllment of the desired positioning and maximises shareholder value A CPG company must make the strategies work. A business operating model species how the strategy will be implemented by dening how the business will operate in all its dimensions (see diagram on page 15).

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Play big for inuence

To recapture inuence with consumers and retailers, CPG companies must marshal their resources and Play big on points of maximum leverage. Playing big does not necessarily mean being big. Massive scale by itself can create rigidity, inexibility and slow responses. Instead, it points to a state of mind in which inuence can be created and sustained.

Shared service centres Brand-intensive and manufacturing-focused enterprises can centralise or outsource support functions like information systems, nance, human resource management, procurement and order management. Support functions that are truly commodities, providing no competitive differentiation, are also candidates for outsourcing. Prudent use of shared service centres can help create a scaleable infrastructure facilitating the integration of acquired companies and improving buying efciencies by capturing consistent spending data.

1. Focus operations to unleash maximum influence

Many companies appear big but in reality arent as powerful as appearances suggest. Instead, their size is ineffective because they are beset with internal fragmentation of resources and effort. The answer? Choose an identity. Specialise. Focus. Be either a manufacturing company or a branding company. Choosing brings consumer importance and retail leverage into greater clarity, and focuses resources on core capabilities and on the things that give competitive advantage. De-capitalise to best leverage your brands Brand-owning enterprises need to nurture their brands and outsource non-core activities that absorb capital. Spinning off manufacturing and related operating processes can reduce overheads and free capital, which can be applied to new product and brand development, consumer ownership, customer management, and supply network management. Using a network of trusted contract manufacturers, brand-owning companies can broaden their opportunities to compete in new markets. Of course, marketing quality products demands manufacturing excellence. Brand-owning companies need to determine what capital assets are critical for the development of new ideas, new innovations and the building of their brands. In the new model, the manufacturing activities of the brand-owning company would be limited to specialised components or formulae preparation at a critical point of value or knowledge capture. or maximise your manufacturing expertise Alternatively, by dropping less important consumer and brand marketing competencies, manufacturing organisations can deliver more value than as an integrated unit. Companies like Heinz, Cott, Gilster-Mary Lee and Ralcorp have already become low-cost manufacturers in their areas and dropped some of their

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emphasis on consumer marketing. Heinz has become a leading supplier of private label soup and pet food. The company also provides frozen foods, soup, ketchup and mayonnaise to Wendys and Burger King.17 Heinz is also a major player in the burgeoning restaurant-branded products eld, partnering with Boston Market. It is imperative for CPG companies to create the skills and aptitudes that t the emerging CPG environment: skills to form and maintain alliances and networks appropriate to the companys core, a focus that maximises shareholder value, and a business operating model that sustains competitive advantage.

2. Expand Consumer Value to capture greater share of life

It is through newfound creativity that CPG companies stand to regain their inuence with consumers by capturing a greater share of life. CPG companies must seek to transform from a products and transactions focus toward a service and life-needs relationship with consumers. Life needs are information, insights, community, solutions, services, experiences and relationships things that stretch beyond just material consumption and occupy more than just eeting moments of consumer attention. These are the needs, say, of a woman who may be balancing the multiple roles of mother, executive, traveller, commuter, party-host and breakfast-eater. Who can she trust and rely on to help manage her roles? Who can help her be productive, caring and fullled, or to just get by? CPG companies can start by focusing on premium products, collaborating on delivery with the existing channels, identifying new channels and services, and nally working against her life needs. As CPG companies embrace a life-needs orientation with their consumers, they will uncover a potentially rich trove of new growth opportunities founded on services and solutions. Not all brands will be able to make this journey. Focus behind those that can.
Figure 5: Moving to a life-needs organization.

Relationships

Consumer loyalty management Redirect purchase Stimulate and reward Surprise Create affinity programmes

Relationship-based solutions Manage life roles Customise products and services Create experiences Advise and direct Anticipatory selling

Category Management

Transactions

Improve products Improve assortment Promote in-store

Integrated value solutions Bundle products and services Co-brand products Extend brands across categories Provide new benefits

Products

Solutions

Source: IBM Business Consulting Services.

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The Play big approach urges companies to explore, experiment with and grow new life-needs products and services. The process is collaborative. A foray into new arenas such as services creates a learning opportunity for companies to gain new abilities in new realms of businesses and can help turn something foreign into a core competency. Having gone so far to meet consumer needs, the next step may be to allow consumers to customise their solutions for themselves. This is seen with P&Gs reect.com, and in its development of Whitestrips teeth whitener. General Mills is also experimenting with this strategy with mycereal.com. Seek new venues to interact with progressive consumers Consumers who are passionate about a product or brand will be prepared to enter into a relationship. Others wont. Consumers who are active in their relationship can tell marketers a great deal about emerging consumer needs. CPG companies have sponsored the creation and experimentation of a number of Internet sites and services, like myhome.com, occasions.com and malts.com, designed for a deeper outreach to leading consumers. Leading U.S. childrens marketers maintain in-depth interactions with trend-setting inner-city kids and with progressive entertainment companies, for example. Grow alternative channels Solutions, services and experiences also provide the impetus for CPG companies to learn how to access consumers directly, rather than through traditional retailers. P&G is expanding its fabric care expertise by test marketing a new store concept called Juvian in suburban Atlanta. Companies like Nestl and Diageo believe that out-of-home (i.e., pubs, clubs, institutions or on-site retail venues) represents a potentially fertile market that can provide incremental growth, while also serving as a way to support their base brands.

3. Demand growth by shattering constraints

CPG companies must demand and expect growth from themselves. Tomorrows CPG companies will be comfortable with contradiction. They will: Drive innovation while also remaining disciplined about SKU proliferation Work with partners but also be focused on shareholder value Outsource non-essential activities but still maintain disciplined control of the enterprise Accept global decision-making in agreed areas but also accept local variations to meet local needs Be driven by performance but still work in a looser, often changing, network.

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Encourage an aggressive search for novelty Growth companies foster a distinctive climate and atmosphere that translates into a hunger for change. Most importantly, risk-taking behaviour is encouraged. CPG companies can set a stretched but fully developed view of the future. They should demand stretch goals and reward success. One technique: redene market share so any one product or service commands less than 10% share of a redened market. And redene markets using global metrics. Use scenario-envisioning approaches to understand what future scenarios require hedged bets now. Bring a portfolio approach to new product development CPG companies need a varied pipeline of new products that require a range of innovation. A mix of truly breakthrough products, simple line extensions and other products with minor news value needs to be developed within the context of limiting SKU proliferation. To manage this, CPG companies need a disciplined, portfolio approach to new product development. This can be accomplished by maintaining a database of benchmarks (e.g., threshold, median and mean IRRs, payback periods, time to market, time to scale, and percent revenue from new products). CPG companies can adapt tools pioneered in other industries, such as automotive and electronics, for critical product development needs. Collaborative product commerce tools extend the development team beyond the borders of the company, enabling effective collaboration with suppliers development resources. Invigorate the ow of new ideas CPG rms should implement an idea origination and management process that encourages the creation and ow of creative ideas from the furthest reaches of the enterprise. This can be facilitated by a Web-based process integrated with a portal that brings a broad swathe of knowledge sources and applications to employees desktops. Make good information widely accessible To drive innovation, companies need to lever up the impact of ideas and manage them to avoid leakage. CPG companies should begin using tools that provide the capability to gather, analyse, aggregate and broadly share extensive information about a brands consumers who and where they are; what, how and where they buy; why they buy; and how they use the brand. This information should readily be available in a form where new product development teams can translate it into insights that drive brand marketing and innovation. Companies are building electronic libraries of internal research to bridge the silos within and to share information.

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Use the desktop portal to make working together easier Enterprise portals can help companies unlock the potential of their businesses and optimise their existing assets. They improve productivity and operational efciency among people within and outside of a company by making critical information and tools easily accessible and usable. Portals expedite communication and collaboration among colleagues, customers and partners.

4. Think like a retailer to drive leverage

CPG companies need an overlay of coordinating processes, activities and tactics that bring the power of their companies to bear on their retail customers. They need to use a concerted mix of global and local resources that best manages each retailer. The best management tool is retailer knowledge. Drive your prots through retail leverage CPG companies must harness their latent creative skills and think like a retailer to engage a large retailer across its entire value chain in a manner that generates real benets for both parties. This will require a manufacturer to understand the true drivers of shareholder value for its retail customers. And it will require a true strategic relationship, not just a simple category management relationship between seller and buyer. CPG companies should begin by investigating what activities contribute the most to improve margins, generate revenues and reduce working capital dependencies for the retailer, and how the manufacturer can most impact these value drivers. Global manufacturers could, for example, become partners to assist retailers in new market development initiatives. CPG companies could leverage their consumer expertise by helping to develop retailer store layout and consumer loyalty programmes. CPG companies that excel in supply chain management could work closely with retailers to eliminate inventories, inefciencies and costs out of the entire channel.
Figure 6: Retailer value chain (illustrative).
Manage store operations Manage logistics and distribution Perform customer service Develop merchandise strategy

Manage inventory

Develop products and services Manage marketing/ advertising

Increase revenues Improve EBITDA margins Reduce working capital

Source products

Source: IBM Business Consulting Services.

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Manage each retail account for protability Excessive trade fund spending feeds an escalating pattern of waste, complexity and inefciency, and leads to brand devaluation. Manufacturers must evaluate each of their customers on a cost-to-serve basis, and then decide what specic investments are warranted. Retail account managers must become true business managers and closely monitor individual retailer (and class of trade) P&Ls. Salesforce incentives should be based on a combination of volume and prot measures. Salespeople should be given new tools to aid their effectiveness, including interactive selling, mobile and remote information access, and automated functions such as updating promotion calendars, tracking orders and managing deductions. Manage trade spending through discipline, insight and control Companies must effectively learn which trade promotions work for both the manufacturer and the retailer. A scientic method should be employed where manufacturers theorise, test and rene their promotions, creating more advanced models that can be leveraged into the future and across the organisation. These promotional learnings can reduce costs for both the manufacturer and retailer, and improve delivery against retailer executional commitments. These learnings must be cross-fertilised among different brand, account and channel teams and across business units. In addition, a strict nancial control system should be in place to ensure visibility and accountability through the entire process, from promotion planning through payment reconciliation.

Spotlight on Asia-Pacic and Latin America Playing big by extending reach The dominant Play big approach in emerging markets is to maximise consumer availability and reach by building the broadest and most reliable distribution channels possible. The expansion of large national, regional and global retailers into these regions have actually aided the distribution of CPG company products. In Thailand, for example, many of the leading European retailers have actively established a local presence such that the modern trade now reects more than 50% of grocery sales. Within traditional channels, CPG companies have broadened their reach while reducing the cost to serve small retailers by building exclusive relationships with large distributors. In Brazil, a large CPG company implemented merchandising, supply chain, and basic IT training programs for its key distributors, and was able to work collaboratively with these distributors to enable continuous replenishment programmes into down-the-street stores using handheld and internet technologies. In China, a leading CPG company appointed 100 independent main distributors as members of a distribution club to serve directly not only traditional trade retailers, but also to act as a trans-shipment point for other smaller distributors in their regions. In return, these distribution club members get higher service levels, sales and IT support, and generous bonuses if they meet the manufacturers business and growth targets.

5. Collaborate enterprise-wide to capitalise on reach and synergy

Playing big extends what is meant by the enterprise that a companys inuence can grow through the captured reach and synergies of all its internal and external stakeholders. Organise for pull, not for push The ultimate supply chain operating goal is to create a demand chain model that is driven by consumer marketing pull versus sales push activities. The mission is to maximise consumption by ensuring on-shelf availability and also minimising inventories. One way this can be achieved is to marry an evolved form of collaborative planning, forecasting and replenishment (CPFR) with lean manufacturing principles. Retailers and manufacturers can collaborate on promotions, and

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then let the manufacturers manage replenishment operations. Manufacturers would ultimately drive and control the demand and supply of their products. Married with lean manufacturing, their entire operations can be driven more efciently, with greater agility. Build a Connected, Transparent Enterprise In one sense, a companys sheer size and complexity can inhibit effective use of information to manage it. For CPG companies to Play big when they are big, they need processes, systems and applications that make their operations globally transparent and visible to managers and will allow them to be exible and responsive to changing industry demands. Reach, synergy and visibility are key benets of the collaborative, extended demand enterprise. CPG companies should view their external communities as a supply web, and must focus on common goals and objectives.

6. Operationalise bigness for competitive advantage

To transform, CPG companies need to map and build a business operating model that operationalises bigness. This must capture and magnify the inter-linking synergies of an extended, networked, customer- and consumer-focused enterprise. An effective model must capture and magnify any combination of Play big initiatives. It must operationalise the strategic intent of focus through appropriate use of capital leverage and managed exibility. It must operationalise expanded consumer value by enabling the delivery of new services and solutions. It must operationalise demand growth by making it easier for individuals to work as part of an extended enterprise. It must operationalise thinking like a retailer by integrating global operations and allowing for effective customer service management. And it must operationalise collaboration by allowing for visible, real-time information.

Figure 7: Business operating model.

Processes and applications technology

Community

Assets

The enterprise
Climate, culture and capabilities Information technology infrastructure Structure and governance

Source: IBM Business Consulting Services.

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Conclusion
A gentle decline into a sedentary old age threatens the CPG industry, requiring a powerful counterpunch. The prescription is to realign the core goals of CPG companies to establish much-improved importance with consumers and to increase leverage with retailers. These are the cornerstones of the Play big approach and the impetus for the strategies by which inuence can be recaptured by the industry. There are three common characteristics of the Play big agenda. The rst is ambition. These initiatives are not for timid or fainthearted managers, since they call for drastic upheavals in the status quo. The second is a trust in the heroic, in the as-yetunimaginable. Playing big is grounded in a faith that very large, quasi-bureaucratic corporate entities can be charged with a thirst for change and an ability to formulate radical new missions. The last is a recognition that the hands of the clock are moving rapidly, and failure to respond, or tepid reactions to the looming crisis, could spell doom. Therein lies the choice for the CPG industry take control or see growth die and retailers win.

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About the authors

Bill Gilmour, a consultant in IBM Business Consulting Services Consumer Packaged Goods practice, has helped global CPG companies and retailers develop high-impact growth strategies for more than 15 years. He specialises in devising strategies to create growth, manage channels and retailers, improve business performance, and build the necessary global systems and applications that enable speed, exibility and visibility of enterprises. Bill was educated at the University of Strathclyde, Glasgow where he graduated in Economics and Business Studies. Tig Gilliam, a consultant in IBM Business Consulting Services Consumer Packaged Goods practice, has more than 15 years in delivering intra and inter-enterprise transformation solutions for global CPG companies. His client experiences encompass a broad range of large-scale strategic, operational improvement, technology and change management programmes for CPG companies and their trading partners. Tig earned a B.S. in Systems Engineering and Finance from the University of Virginia, and an MBA in Finance and Operations from Columbia University.

Principal Editorial Team:

Bill Gilmour, Tig Gilliam, John Breuer, Kathryn Gramling, Chris Lemmond, Frank Milton, Tom Murnane.

About IBM Business Consulting Services

With more than 60,000 consultants and professional staff in more than 160 countries globally, IBM Business Consulting Services is the worlds largest consulting services organization. IBM Business Consulting Services provides clients with business process and industry expertise, a deep understanding of technology solutions that address specific industry issues, and the ability to design, build and run those solutions in a way that delivers bottom-line business value.

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References
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Build a Better Mousetrap 2001 New Product Innovations of the Year, ProductScan Online, 2002 Build a Better Mousetrap 2001 New Product Innovations of the Year, ProductScan Online, 2002 IRI, New Product Pacesetters, 1999-2000 IRI, New Product Trends, 2000 U.S. Department of Commerce and Retail Forward, Inc. U.S. Department of Commerce and Retail Forward, Inc. Jim Dougherty, analyst with Prudential Securities, as quoted in The partys over: Consumer package goods, Advertising Age, January 1, 2001 Business Week/Interbrand, The 100 Top Brands, August 6, 2001 Universum, MBA Editions 2001 and Graduate Survey 2001 PricewaterhouseCoopers LLP/Financial Times, Worlds Most Respected Companies, December 12, 2001 Top 100 Retailers, Retail Forward, Inc., August, 2001 Top 100 Retailers, Retail Forward, Inc., August, 2001 Cannondale, as reported in Study: Trade Dollars Up, Frozen Food Age, September 1, 2001 Cannondale, as reported in Study: Trade Dollars Up, Frozen Food Age, September 1, 2001 Alex Brown analyst Andrew Shore, quoted in Private party at Wal-Mart : Chain dominates private-label growth, Advertising Age, October 29, 2001 Sainsburys Team Boosts Own-Label, Marketing, September 20, 2001 Heinz Says Hold the Ad Spending, Advertising Age, July 30, 2001

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Contact information
To learn more about our global Consumer Packaged Goods practice and to view the full version of this paper, please visit http://www.ibm.com/bcs/cpg or contact an IBM Business Consulting Services representative. Bill Gilmour London CPG Practice bill.gilmour@uk.ibm.com +44 207 021 8185 Tig Gilliam New York CPG Practice tig.gilliam@us.ibm.com +1 646 598 4150

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 Copyright IBM Corporation 2003 IBM Global Services Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America 04-03 All Rights Reserved IBM and the IBM logo are registered trademarks of International Business Machines Corporation in the United States, other countries, or both. Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates.

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