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Impact of IoT in CPG sector

Impact of IoT in CPG sector
Mayank Abrol - Deputy Manager, HCL Business Consulting | October 5, 2017
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Co-authored by Saurabh Bhandari

IoT to many organizations is like house parties to teenagers; all teenagers think that the others are doing it (hence they should also do it), but everybody knows that they are not doing it in the best possible way.

Is IOT a teenage house party or just another buzzword in town?

IoT is not a new concept, but just a buzzword in town. Considering this concept is few decades old, CPG industry still ranks the last in terms of IoT spending as a % of revenue (0.24%) compared to hi-tech manufacturing and transportation sector (spending 0.60% of revenue on IoT). One of the reasons is primarily because IoT was always leveraged to understand the end-consumer behaviour and it was pre-dominantly retailers who invested in IoT to understand and improve the customer experience. CPG companies relied upon in-store audits and insights from retailers to understand the end-consumer behaviour.

However, with the advent of smart phones, reduction in sensor prices, advance data analytics capabilities, cheaper computing power and increase in internet penetration, CPG companies realized opportunities in direct consumer interaction leveraging IoT(For e.g. Heineken Ignite connecting beer bottles to understand consumers) . Learning from hi-tech manufacturing and oil industries inspired CPG companies to gather, analyse data through smart sensors to improve the efficiencies in the supply chain and operations. Below artefact depicts the areas impacted by IoT across the CPG value chain:

While there are ‘n’ number of use cases across the value chain where IoT has (or will) impacted the CPG sector, the following thoughts summarize 3 key areas where CPG companies should focus upon to realize the business benefits of IoT:

IoT

  1. Catering to end-consumers

    Developing more personalized products and proactively monitoring customer’s demands are the two major areas where CPG companies are leveraging IoT to retain and grow their customer strength. For example, CPG companies are blending the offline and online customer shopping experience by using ‘Internet of Things’ to track the flow of inventory and flow of information – to enable a customer browsing an out-of-stock product online to be guided to the nearest store and receive a discount coupon as a push notification on his mobile phone.

  2. Improving efficiencies in manufacturing and supply chain:

    Gaps in the manufacturing and supply chain areas can be eliminated by leveraging information through connected devices. For example, manufacturers can monitor shipments along the way, get real time fleet status and take any precautionary measures or inform confirmed stakeholders in case of any breakdowns; which in turn can improve their On-Time In Full (OTIF) KPI. Predictive maintenance within the manufacturing plant can reduce number of cases of unplanned network breakdowns; thereby improving OEE and TMP ratios; remote access of equipment can improve the asset utilization within the four walls of the plant.

  3. Collaboration with retailers:

    Historically, CPG companies have always relied upon retailers for in-store retail experience of end-consumers. However, CPG companies should look for opportunities to collaborate and co-invest with retailers in areas like smart shelves to reduce out of stock scenarios and improve on-shelf availability to improve the overall customer experience. Such scenarios can create win-win situations and help develop strategic relationships with retailers in the long run.

People

The “people” for CPG organization can be categorized under 4 buckets, namely customers (retailers, wholesalers), end-consumers, internal employee and the other partners (like suppliers, contract manufacturers) across the value chain. To leverage the true potential of IoT; it’ll be important to assess the impact and maturity level of each bucket in terms of the IoT adaptability rate.

IoT will have a huge impact on consumer behaviour‘how they buy’, employee productivity‘utilization of resources’ and people management ‘how to train and retain talent’. A revamped top down Human Resource strategy will be the most critical exercise to cater to the employee of the organizations. In-house training programs and employee development programs to upskill the staff will help in tap the true potential of IoT and generate higher productivity levels for CPG organizations.

Process

A process is series of events that leads to a result. The implementation of IoT as a technology will require certain processes to be re-designed to realize the full potential of the results. Taking an example of a beverage CPG organization that is using smart interconnected devices to manage transportation lead times, reduce stock shrinkages and improve on time in full of finished goods – to ensure better productivity levels for each process required them to re-define the supply chain processes and then use IoT as an enabler to help achieve the desired results. In this manner, data generated (& analysed) by interconnected devices leads to ‘bulls eye’ decision making and drive all supply chain processes aligned with customer expectations and organizational growth plans.

Technology

Interconnected devices are already generating more than 1 Zettabyte (1081 GB) of data already. Combining this quantity with the speed and variability with which it is getting generated on a daily basis, raises concern and challenges to maintain, mine and secure this data. Keeping these challenges in mind, CPG organizations need to be prepare themselves for the following on technology front

  1. Data Storage facilities
  2. Hype data technologies
  3. Data security layer to protect sensitive data from cyber attacks
  4. Hype data analytics platforms

Conclusion

In quintessence, to realize the full potential of IoT it is important to take a step back and understand that at the end of the day IoT is all about:

  1. Collecting data through “smart” interconnected devices
  2. Processing & visualizing data

that enables organizations to act and take business decisions in a faster and efficient manner with the objective of generating revenue or reducing cost. The winners will be the ones who can understand the holistic impact of IoT from a people, process and technology perspective.

Saurabh Bhandari

 


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