Predictions for the Coming Year: Consumer Packaged Goods, Part 1-Manufacturing

Stephen DeAngelis

December 30, 2013

The consumer packaged goods (CPG) sector involves both manufacturers and retailers and, therefore, predictions involving this sector normally include both. In a webinar, analysts from IDC Manufacturing Insights and IDC Retail Insights provided their respective top 10 predictions for the year ahead. In this post, I’ll discuss what they predicted for the manufacturing sector and, in the next post, I’ll discuss what they predicted for the retail sector. [“What Will Consumer Goods Look Like in 2014?Consumer Goods Technology (CGT), 10 December 2013] You can access the IDC Retail Insights webinar by clicking here (registration required). The CGT article notes, “[These] predictions will help both sides of the supply chain to grasp emerging market opportunities and plan for future growth.” The first prediction involves what IDC calls 3D value chains.

 

Prediction #1: Manufacturers will begin to build 3D value chains. According to Kimberly Knickle, the three “Ds” in the value chain refer “to demand-oriented, data-driven, and digitally executed.” [“2014 – A Changing Year for Manufacturers’ IT Portfolios and IT Organizations,” IDC Community Insights, 12 December 2013] She adds, “These 3D initiatives will build upon combinations of the 4 pillar technologies (big data and analytics, cloud, mobile, and social and collaboration) to provide manufacturers with critical capabilities that support the line-of-business requirements.”

 

Prediction #2: Operational, information and consumer technology converge to reshape approaches to technology management. Knickle indicates that these technologies are defined by IDC as follows:

 

  • Information Technology – Enterprise Tech – the traditional business systems that support administrative processes and transactional integrity, largely financial, human resources, and baseline order management.
  • Operational Technology – More line of business specific, not just in the factory but also in the supply chain, product management, and other business domains.
  • Consumer Technology – The devices consumers can purchase and bring into the workplace, influencing our attitudes about how we work and also what devices we use to work.

 

Prediction #3: Operational resiliency will be the focus of supply chain strategies in 2014 and beyond. David Tapper, vice president of Outsourcing and Offshore Services at IDC, wrote a white paper earlier this year entitled, Lack of Operational Resilience Will Undermine Enterprise Competitiveness: A Strategy for Availability. In the introduction to that paper, Tapper writes, “What do the following events have in common: cyberattacks, severe weather, health pandemics, and power outages? They all drive organizations to develop a very sophisticated means of ‘availability’ — maintaining uninterrupted business operations. The key to success is building availability processes for operational resilience that integrate, orchestrate, and align the priorities and objectives of line-of-business (LOB) executives, such as CXOs and VPs/managers of business processes, with those of IT.”

 

Prediction #4: Supply chain technology investment will involve modernizing existing systems, while also trying new approaches. During the webinar, Robert Parker, IDC Retail, Energy and Manufacturing Group Vice President and General Manager, stated, “The manufacturing industry has an established track record of continuously improving productivity and is at the cusp of a new wave of gains that will dramatically restructure value chains to be closer to demand regardless of direct labor costs. This is being driven by an ‘intelligent economy’ where customers are more informed, talent is at a premium, and the time to react to changes is compressed.”

 

Prediction #5: The modernization of the underlying B2B commerce backbone becomes an investment priority for IT. According to Knickle, IDC has “laid out a vision for that change, shifting IT into 3 organizations, one that works closely with the COO for the line of business, a 2nd group that stays focused on the core ERP platforms and reports into the CFO, and a 3rd group that owns the enterprise architecture.”

 

Prediction #6: Product lifecycle management (PLM) strategies become increasingly global, multidisciplinary, innovation-based, and customer-focused. According to the IDC website, “Effective product life-cycle management (PLM) improves the ability of the manufacturing enterprise to make better and faster product-related decisions. Manufacturers must adopt PLM as a strategy to make effective product portfolio, design, manufacturing, and sustainment decisions. … Product life-cycle activities [include everything] from ideation and innovation, product and portfolio management, design and engineering, [to] end of life and disposal.”

 

Prediction #7: PLM initiatives will focus on value realization. Anders Johansson, Sohrab Kazemahvazi, Björn Henriksson and Mikael Johnsson, all analysts with Arthur D. Little, note, “The concept of product lifecycle management is not fully understood by executives and PLM initiatives are often misguided, missing their true potential and making projects unnecessarily costly. Not understanding how to optimize PLM investments (e.g., by focusing on engineering efficiency instead of product efficiency) will have long-term effects on both the top and bottom line. At the same time, companies that realize how to use PLM as a competitive weapon will be able to capture significant market advantages.” [“Why Product Lifecycle Management Should Be On Every Executive’s Agenda!InnovationManagement.se, 5 July 2013]

 

Prediction #8: “Servitization optimization” will be core to future profitable revenue growth and leading manufacturers will make the necessary investments to enable these strategies. The concept of servitization involves shifting a manufacturer’s mindset from just creating and selling products to integrating products with services as a package that delivers added value to customers. Many analysts believe that servitization can be a key competitive differentiator (especially when longer lifecycle products are involved).

 

Prediction #9: On their way towards the factory of the future, 2014 will set the stage for a new manufacturing renaissance. A slideshare presentation by Endeavor Management, cites IDC Manufacturing Insights research that reveals, “Manufacturing companies are sitting on a record stockpile of cash …” The presentation also cites data from the Equipment Leasing & Finance Foundation that concludes, “In 2013, $1.3 trillion is projected to be invested in plant, equipment and software.” From these facts, the presentation concludes 2014 “will be characterized by considerable investment by manufacturers in their businesses.” In other words, they are going to produce a manufacturing renaissance.

 

Prediction #10: Plant floor IT investments will continue to become a higher share of the overall technology investment portfolio. This prediction certainly can’t come as a surprise. The increase in the use of additive manufacturing and the continuing trend of replacing humans with robots means that IT will be a permanent player on the factory floor. As Milind Lakkad, Sreenivasa Chakravarti, and Ramit Rastogi write, “Traditional modes of manufacturing have given way to ‘virtual factories’ and 3D manufacturing. The industry has come a long way and will continue to evolve. … The availability of new technological capabilities – information technology as well as business technology – provides an impetus to the winds of change. … Firms that will adapt faster, embrace the digital wave better, and clearly identify the defining elements of the end consumer’s new center of gravity, will remain at the forefront of the industry.” [“Manufacturing Reinvented,” Tata Consultancy Services, September 2013]

 

I was a little surprised that the IDC list for manufacturing didn’t specifically include predictions about additive manufacturing, robotics, or packaging. Brenda Hambleton, chief marketing and strategy officer with ES3, stated, “Our industry is going through as big a change as we’ve ever gone through.” [“Consumer Goods Supply Chains: The Next Five Years,” CGT, 7 November 2013] She notes, “Manufacturers are spearheading innovations in packaging.” Perhaps the biggest challenge for manufacturers will be addressing the growing number of products competing for limited retail shelf space. More products generally result in less inventory for any one product in the pipeline which will require greater collaboration between manufacturers and retailers if those products are going to avoid out of stock situations. In the second part of this post, I’ll discuss IDC’s Top 10 predictions for CPG retailers.