Current conditions in the Consumer & Industrial Markets
In the consumer & industrial market, every supplier is facing the issues that are being generated by the current economic downturn, in addition to the everyday competitive market conditions. The need to extract more value from a shrinking budget is becoming front of mind for most, if not all CEOs, CFOs and COOs.
Whilst demand across the sector is expected by some economists to remain reasonably stable, the uncertainty generated by the current downturn means that very few orgainsations are adopting a ‘business as usual’ approach.
In addition, whilst demand is expected to remain reasonably stable at a macro level, it is predicted that consumers will be more cost conscious in the short–to–medium term, and that this will influence their buying habits. For example, cost increases would be expected to have a disproportionately high impact on demand, and consumers are also likely to switch from premium brands to value brands. In particular generic items are expected to increase market share as they have in Europe where they account for over 50% of sales volume in supermarkets.
The challenge then is to grow profits by reducing costs, whilst maintaining or growing share by offering new, differentiated products to the market – and to understand the impact that the actions taken are having on volume and the bottom line. Sounds easy?
How Can BearingPoint Help Your Organisation?
At BearingPoint, we take great pride in the experience and skills that we have developed over the years with our clients in the consumer & industrial market.
We have applied our approach of deeply listening, challenging perspectives, being creative and taking ownership to each of the following business issues to help our clients realise tangible benefits:
Sales - The larger customers dominate the market and, whilst they offer high volumes, they are also in a position to regulate prices. Opening new markets by attracting smaller customers is one way of increasing volumes whilst maintaining profits. But which markets? And what services?
New Product Development - The industry is expecting a surge in the number of new products coming onto the market as a means to create differentiation, particularly as regards generic products. However, the new product development process is far from simple, requiring as it does the involvement of all of a manufacturer’s operational areas – and this typically results in long lead times and higher costs, which of course takes away from the beneficial effects that releasing a new product is expected to have.
Marketing - Marketing effectiveness remains a big source of potential gain for consumer goods companies. Most, for example, are still struggling to maximise the value of trade spending — the money passed on to retailers to promote sales. Given how much money is invested, and the declining productivity of traditional advertising in many markets, managers are under increasing pressure to manage resources wisely. To do so, however, requires robust systems and processes that can provide the control and intelligence required to manage this spend – something that many CPG organisations simply don’t have.
Operational Efficiencies - Discipline in execution is nothing new, but it remains a top priority, despite the likelihood of decreasing returns. The important point is that big differences in the performance of companies persist. In other words, superior capabilities can be built and exploited. In the coming years, success will require ever sharper capabilities in the four main areas that sustain consumer goods companies: brand marketing, sales, innovation, and the supply chain.
Supply Chain - Leading companies will find ways to squeeze more efficiency from their supply chains by outsourcing some of their operations (e.g. logistics), employing new technologies (such as radio frequency in warehouses), or redesigning processes to reduce input costs, waste and variability, as manufacturers in other sectors have done.
Legislative Compliance - The Federal and State governments are becoming increasingly active in some areas of the industry, and more changes are expected particularly in the liquor segment, with health warnings on alcohol and a draft standard on health and nutrition claims among the topics being discussed. Organisations are increasingly exposed to risk if they are not taking an active part in the legislation process. In addition, in the event that new legislation is introduced, mass changes to product packaging may be required – as has happened recently in the tobacco industry – which can be a long and costly process if not managed correctly.
Sustainability - Some CPG organisations are differentiating their products by focussing on sustainability, and there is no doubt that the ‘green’ market exists. However there is a related cost that must be considered – can organisations in fact afford the competitive edge that being ‘green’ provides?
Credit & Risk Management - Managing cash flow – and in particular bad debt – is going to be of increasing importance during the recession, as organisations seek to improve their own cash position and are at greater risk of going out of business altogether.
Talent Management - When processes are made more efficient, typically the reduction in costs can only be fully realised when headcount has been reduced. However, reducing headcount can also destabilise your workforce and cause a drop in morale – which can in turn lead to the remaining employees – who represent the best store of IP about your business and who are the future managers of your organisation, looking elsewhere for more stable employment.
Business intelligence - Most organisations don’t have the level of visibility that they would like when it comes to managing their organisation. Sales, production, purchasing – all have a wealth of data, but it’s not necessarily the right data or even accurate data. And getting the value out of that data by presenting it in a timely and effective way to busy managers is even more rarely achieved.
By helping our clients resolve all of the above issues over the years, BearingPoint has developed a unique combination of management and technology consulting services encompassing business process redesign, ERP (SAP, Oracle), organisational change management, application development and information management. We’d be happy to talk to you to find out how we can assist your business to remain strong and even thrive in these turbulent times.