How consumer goods companies are building flexibility into their operations to respond to growing market pressures.

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Consumer goods companies are squeezed between market and margin pressures

Market trends are reshaping the consumer goods industry. Consumers are demanding more tailored offerings, retailers require more responsiveness, online channels drive new formats and smaller players intensify competition. To respond, consumer goods companies need to be able to launch new offerings faster, manage a wider product portfolio and quickly adapt to changes in demand. In other words, they need flexible operations.

However, the focus on margins and short-term financial targets limits companies’ ability to transform inflexible operations, designed for efficient production of a small number of product variants with limited demand variability. Unable to change, many consumer goods companies see their margins shrinking as their lack of flexibility limits growth and increases costs.

Consumer goods organizations are gradually reinventing their operations

Recognizing that established operational improvements such as product harmonization are not enough to face these growing pressures, breakthrough ideas are reshaping consumer goods companies’ operations and helping them to become more flexible while still protecting their profit margins.

Innovating production lines

To avoid the costly re-engineering of entire production lines, companies are upgrading their existing assets to adapt to market demands. The process steps most impacted by changeovers are being upgraded with digital solutions. For example, an alcoholic beverage manufacturer is piloting linear synchronous motor conveyors to replace standard handling systems on filling lines to enable instantaneous primary changeovers. Another trend is decoupling process steps (for example, making and packing) with intelligent buffers and many-to-many handling solutions, unlocking at least 20% capacity in the case of a laundry manufacturer. Late stage customization is moving to the next level with assembly of pre-packed items to minimize repacking costs for special packs. Additive 2D & 3D decoration on packaging is also growing and gradually shifting to the product itself, like what a chocolate manufacturer is doing to ‘premiumize’ one of its product lines.

Empowering people to drive bottom-up change

A growing trend to increase operational flexibility is integrating responsibility across functional silos to provide a more end-to-end view. This makes it easier to adapt to external changes and positively impacts profitability. For example, organizing responsibility around product categories as one confectionary company is doing. Digital technologies are also a cost-effective way to boost workforce flexibility. Extended Reality applications can synchronize and accelerate by 15% complex changeover activities and support ongoing operators’ training. Another growing trend is allowing operators to build their own mobile apps using simple customization tools, leveraging existing operational data to drive continuous bottom-up adaptation and boost productivity.

Developing products in sync with consumer needs

Accelerating the launch of new products is vital to respond to evolving market needs. R&D can build flexibility into product requirements, predicting evolving consumer tastes and minimizing development efforts (and costs) for new variants. For example, a major food manufacturer has introduced a pre-developed seasonal soup recipe. Another growing trend is testing actual consumer buying behavior for potential new products on selected channels. A home care product manufacturer has started introducing virtual products on its digital channels, enabling it to run market tests and iterations for a minimal investment, while gaining valuable consumer analytics. Finally, multiple manufacturing efficiency solutions are being used to accelerate products to market, including 3D printing of spare parts and digital twins to shorten product launches.

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Extending production & iteration across the entire value network

Building flexibility into operations goes well beyond the factory walls. The classic centralized production model is slowly being replaced by a more distributed one, closer to consumers, reducing complexity and response times. For example, a beverage manufacturer combined existing centralized high-volume operations with local, lower speed flexible operations (including robotic cells close to urban areas) to pilot a customized product in 48 hours. The adoption of mobile production units to test new markets is also expanding across the consumer goods industry.

Distributed manufacturing moves even closer to consumers with advanced vending machines and in-store experiences. This opens up new opportunities to customize product blends and decoration, driving a rich personalized brand interaction (examples include Lancôme, Coca-Cola, M&M’s). Customization at point of use is also emerging: active, connected packaging performs the final production step based on consumer requests (for example, LifeFuels intelligent water bottle offers customized nutrients). 

Last but not least, modular operating models are emerging that allow companies to plug in & out efficiently with partners, acquisitions, suppliers, and startups. For example, a major consumer goods company is shifting to an asset-light model, leveraging co-manufacturers across the world, thereby increasing its ability to adapt capacity where and when needed.

The future is flexible

We are entering an exciting era for consumer goods companies, where adaptable operations will drive a new wave of profitable growth, supported by the fast introduction of customized offerings and fluid operational capabilities across the value network. The north star of this transformation roadmap will keep moving with market trends and emerging technologies. Flexibility will determine whether consumer goods companies endure and grow.

Want to discuss how your organization can build flexibility into its operations? We’d be delighted to meet you for a chat.

Michele Barone

Senior Manager – Consumer Goods & Services

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