Hubspot Blog Feed
WHY IS EVERYONE GOING “IoT” ?
The Internet of Things (IoT) is the new “abracadabra” in the retail world. The technology has been around for at least 25 years, though the technology has only just matured, and is creating an impact on retail businesses.
In a recent article, Forbes reported that retail sales in 2017 were $3.5 trillion and estimated a 4% growth this year. Indeed, there is opportunity to increase revenue, by targeting the right customers, but despite increased sales, 7,000 major store closing announcements were made last year. The store closings were caused primarily due to the changing behavior of the customer, and the ease of ordering a product with the click of a button or a simple voice command. Brick and mortar stores carrying products have merely become museum pieces, a thing of the past. Retail sales are continuing to grow. However, the channel that the product is being purchased through by the customer is changing. By analyzing customer behavior and providing real-time solutions, IoT devices and applications create impact and improve operations in this pivotal shift. The change in customer behavior causes a necessary change in structure of supply chain networks and financially sustainable business models.
HOW CAN IT HELP ME?
CGN continues to recognize this shift across the retail industry. As retail supply chains continue to go more and more digital, IoT devices and applications are becoming magic wands, ready to instantly shift a supply chain’s course. With retail giants, such as Amazon and Walmart, sharing their digital transformations through IoT software, retail vendors and distribution centers, they have encouraged this shift. In the hope of growing the business and taking it to new heights, a few IoT impacts on the retail business include:
Using temperature sensors for refrigerators to set optimal temperature control for grocery productsIdentifying Target markets
Identifying substitutional, impulsive, and loyal customers; in addition to targeting them with marketing coupons and improving the journey of the customerCost Reduction
Setting the right amount of energy resources (electricity) required and predicting downtime for machinery present in retail stores
Predicting the next stock out and plan optimal amount of buffer stock; critical for perishable retail products with short shelf life
Even though IoT is cool and a hip thing to talk about in business conversations, it is important to analyze each business problem individually and estimate the true value and impact of IoT applications for each problem. In conclusion, IoT devices and applications still need to mature, in terms of creating an ecosystem of devices, analyzing real-time data, and generating a point of focus for autonomous operational use. Be careful while playing with magic.
CGN Global’s Digital Transformation Service is uniquely positioned to recognize and address this industry shift. CGN has developed digital solutions that provide business insights by leveraging the signals gathered from these IoT devices and other sources. It can help transform organizations worldwide to improve performance, profitability, and global competitiveness. We use our diverse experience and broad knowledge to provide strategic insights, actionable recommendations, and focused execution to drive results. We identify the challenges and the market opportunity with the use of IoT applications.
Companies operating globally, in a wide range of markets, cater to various needs of customers, with different requirements. This requires having the flexibility to offer a large variety of products, which increases complexity, costs, and efficiency. Companies need to develop a strategy, to manage offering these wide varieties of products, with an increased standardization of components.
Traditional product design within product life-cycle management (PLM), focuses on integrating product requirements into design, but fails to address the need for variants without increasing complexity.
Modular design is an approach that enables the standardization of components, and facilitates offering a wide variety of product
A product with modular design is created by combining standardized components or modules that can be combined in different ways. Examples of systems with modular design include buildings, computers, cars and solar panels.
Modular sourcing is a sourcing strategy that allows companies to realize supply chain efficiency gains; through procuring standardized modules or sub-assemblies from suppliers. This will require development of standardized modules, during product development, and working closely with the suppliers to ensure module development is realized. Modularity benefits span the entire supply chain, as shown in Figure 1.
Figure 1. Modularity Benefits
One of the critical aspects of modular sourcing is developing modules. Our approach to modularization of a product is defined in 5-phases as shown in Figure 2.
Phase 1: Clarify customer requirements. Understand the primary objective of the company, to pursue modularization, and learn how modularization will help the company achieve its strategy and satisfy customers. Companies need to gather the voice of the customer and the voice of the business to guarantee that they are met via modularization efforts.
Phase 2: Select technical solutions. Translate customer requirements into functional requirements. Identify functions and sub-functions necessary to meet each functional requirement and develop a functional structure. Identify product components for each function and sub-function, and develop the overall product structure. Identify interfaces between each component within the product structure.
Phase 3: Generate concepts. With the product structure defined, and interfaces identified, identify modules based on ideas from standardization and variants, assembly processes, and feedback from suppliers.
Phase 4: Evaluate concepts. Evaluate the developed modules and alternatives, based on various factors, such as cost, flexibility of changes, and level of modularization. Evaluate how modularization will help the company achieve its strategy and meet customer requirements.
Phase 5: Improve each module. Evaluate if the current level of modularization will help the company achieve its strategy and continuously improve modules until the objectives are met.
Once modules are finalized, the supplier collaboration has to continue to ensure the supplier has the necessary processes and technology developed to make the modules.
Figure 2. Modularization Approach
CGN Global has worked with clients in heavy equipment manufacturing, to address their business imperative of improving product response time to the market, have a competitive and flexible cost structure and evaluate make vs buy strategy. We assessed the internal requirements and facilitated workshops to evaluate a make vs. buy strategy, cost breakdown, product design, assembly processes and supplier footprint, and generated modularization ideas by working with various functions including engineering, manufacturing, purchasing, logistics and suppliers. Ideas were generated and project teams were established to execute ideas that include modular design and sourcing, resourcing for supplier base consolidation, assembly process improvement, and material cost reduction. Modularization efforts resulted in reducing time to market by 12%, 6% total cost reduction and 15% supplier reduction.
Mergers and Acquisitions (M&A) is a common phenomenon these days, involving consolidation of companies or assets. For instance, the recent acquisition of Broadsoft by Cisco Systems will help Cisco provide broader solutions to its clients and grow, in terms of subscribers, product portfolio, revenue, and size. It takes a lot of detailed financial analysis, and a huge negotiation process, involving many M&A firms – investment banks, law firms, accounting firms, consulting & advisory firms, before successfully sealing the deal, to perform post-merger integration activities.
After either a merger or an acquisition, there are huge opportunities to leverage through supply chain integration and consolidation, namely:
- Economies of scale
- Improved customer service
- Service / SKU / Part number conversion to improve sales
The parent company would try to make significant efforts in reducing costs and pursue one or more of the following:
- Corporate restructuring
- Supply chain integration and network optimization,
- Operational improvements to break even on acquisition costs.
When performed effectively and efficiently, a post-merger supply chain integration could lead to significant reduction in supply chain costs, which helps to breakeven on acquisition costs faster. So, the first step in performing the integration process is an assessment to understand the functions / areas that can be merged. Understand the levers that need to be considered while performing the integration. From a supply chain standpoint warehousing, logistics, systems integration, and end to end network design must be considered.
To do it the right way, a network model replicating the current state network should to be created including all products/parts, supply base, manufacturing centers, distribution centers/warehouses and logistics network of both the parent and the acquired firms. Feasible scenarios should be identified, which would bring significant improvements to the resulting supply chain network, in terms of customer service, and total supply chain costs; for instance:
- What happens to total cost when the supply chain network of the acquired is absorbed by the parent?
- What happens to supplier performance when the supply base for similar parts is resourced and/or consolidated?
- Can we significantly improve service levels by keeping some of the warehouses open from the acquired?
After validating scenario results, implementing changes to the network will be quite challenging, both from a process and physical integration standpoint.
CGN Global recently helped a heavy equipment manufacturer successfully complete the integration of its aftermarket supply chain network with the acquired firm, to improve service, sales, and cease the legacy aftermarket supply chain, as well as save millions of dollars in total annual cost. The client wanted to launch an enterprise wide aftermarket supply chain integration, to consolidate all acquired parts inventory and manage the distribution and sales, through the existing well-established and more comprehensive aftermarket network. This would lead to all benefits that were previously mentioned.
The parts integration process and team, along with our consultants, were considered a separate factory that converted and superseded legacy parts into the client’s current aftermarket supply chain. CGN was responsible for establishing the process, and improving the overall operational performance of this factory, by building efficient tools and solutions.
At CGN Global, we build fast paced, effective and efficient solutions to solve the identified root causes. Our 20 plus years of experience and expertise in problem solving, and solution building, have helped our clients successfully improve the EBIDITA, through significant reduction in total supply chain costs, by completing the integration swiftly and accurately.How do we integrate?
A blue ocean represents all industries not in existence today, as an unknown market space, untainted by competition. In Blue Ocean Strategy, demand is created, rather than fought over. There is ample opportunity for growth that is both profitable and rapid. There are two ways to explore a blue ocean.
In a few cases, companies can give rise to completely new industries, as eBay did with the online auction industry. However, in most cases, a Blue Ocean Strategy is created from within a red ocean, where a company alters its boundaries within an existing industry.
A prime example is Cirque du Soleil. By breaking through traditional boundaries, bridging circus and theater, Cirque du Soleil made a new and profitable blue ocean from within the red ocean of the circus industry.
Cirque du Soleil is a Canadian entertainment company, founded in 1984 by two former street performers, Guy Laliberté and Gilles Ste-Croix. Guy and Gilles did not restrict themselves to traditional circus, by combining the best elements of circus and theatre. In doing so, they eliminated the trade-off between value and cost for the consumers.
W. Chan Kim and Renée Mauborgne, the creators of Blue Ocean Strategy, define the four steps that Cirque du Soleil took to create a successful blue ocean. These steps are include:
Unfortunately, most companies seem stranded within their red oceans. In a recent study conducted, comprised of 108 companies, it was found that 86% of new ventures were incremental improvements to existing industry offerings. A mere 14% were aimed at creating new markets or industries. While line extensions did account for 62% of total revenue, they delivered only 39% of the total profit. By contrast, the 14% invested in creating new markets and industries, delivered 38% of total revenues and a startling 61% of total profits.
By focusing largely on competition, companies have ignored two very important lucrative aspects of strategy. One such aspect includes finding and developing markets where there is little or no competition (blue oceans). The second aspect involves exploiting and protecting blue oceans. These challenges are very different from those to which strategists have devoted most of their attention.
Leading-edge technology is sometimes involved in the creation of blue oceans, but it is not a defining characteristic. This is often true even in industries that are technology concentrated. As seen over time, across all industries, blue oceans are seldom the result of technological innovation. However, the underlying technology was often already in existence. Even Ford’s revolutionary assembly line can be traced to the meatpacking industry in America. Like those within the auto industry, blue oceans within the computer industry did not come about through technology innovations alone, but by linking technology to what buyers valued. For example, the IBM 650 and the Compaq PC server often involved simplifying the technology.
At CGN, we help our clients look past the red ocean and aim for the blue, by looking to the future, exploring new innovative and disruptive markets. We empower company leadership to look at the holistic view of industry, its customers, and visualize the current and future gaps within the industry. From here, CGN drives transformation by eliminating and reducing extra features, while raising and creating value for customers, by re-defining the organization, and turning assets into advantages, driving innovation and agility across the organization, truly transforming the business with a roadmap to the future.
Since 76% of all purchase decisions are made in-store and 68% of retail purchases are impulse driven, retail point-of-purchase (POP) displays represent one of the strongest Marketing vehicles to influence shopper behavior, sway brand loyalty, and ultimately increase sales.
When displays are not optimally produced and fulfilled, the results are waste, lost sales, competitive weakness and lower marketing performance. Companies spend billions every year on displays and other forms of POP. Yet many do not know or realize the potential savings and operational improvements at every stage in the process. An end-to-end cross-functional approach, involving all company and vendor stakeholders, reveals hidden waste and inefficiencies, enabling higher optimization, greater control of merchandising programs and increased return on investment.
These are some often missed operational improvements:
Forecast Accuracy: Delivering the right quantities of the right POP to the right stores, at the right time, is critical to success. Missing the promotional windows and product launch dates lowers compliance and product sell-through. In addition to waste, poor forecasting reduces marketing impact. Products are coming to market more quickly, and in-store support along with it. With accelerating SKU proliferation and a volatile retail environment, order lead times are shortening and demanding sensing requires more complex real-time data analysis. New tools, performance metrics and visibility across the enterprise are necessary.
Waste Reduction: In addition to forecasting, there are many end-to-end operational improvement opportunities that can impact the bottom line, including lean manufacturing, material spend, inventory reduction, overrun elimination, transportation, and administration costs. Additionally, carbon footprint reduction and fuel conservation help sustainability cost.
Efficiency: Improvements inefficiencies can be found throughout the supply chain, including design, printing, packing, and shipping.
Design Standardization– the optimal mix of customized, standardized and dynamic elements can reduce costs while maximizing breakthrough communication and merchandising. A straight cost-cutting approach can reduce performance and ultimately, lower ROI.
Distribution Network Alignment and Models - increasingly complex omnichannel models require quicker and more efficient means to deliver at stores.
Operational Redundancy - elimination and reduction of excess touches
Transportation - route efficiency
Stakeholder Alignment: Marketing, sales, production and other stakeholders must be aligned on goals, plans, execution and performance metrics. How well are agencies, printers, shippers and other vendor partners collaborating and operating as an efficient and effective team?
Visibility: All stakeholders should clearly and quickly see waste, inefficiency, forecasting accuracy, bottlenecks and other issues. Performance measure tools and team-driven improvement processes need to be in place with accountability across all functions.
POP production optimization reduces marketing investment and increases return, resulting in improved ROI and high sales. Working in functional silos and cutting budgets will only provide short-term, limited savings and can reduce effectiveness. For a multiple-year, bottom line impact, a holistic approach looking at both savings and performance should be implemented. The result is more displays going up in store with a lower spend, stronger retailer relationships, higher consumer loyalty and ultimately, increased revenue.
Background: With the advent of renewable energy sources, social media connectivity, and a revolution in electric vehicles (EV), the traditional power industry (especially utilities) is facing challenges that it has never seen before. The industry must optimize the cost of business and meet customer expectations. After the Paris climate accord of 2015, a consortium of 121 solar resource rich countries, also known as the International Solar Alliance, are working on reducing the cost of technology and device ﬁnancing. For future energy requirements, many nations are now encouraging the use of non-conventional sources of energy, while increasing costs and taxes for the conventional sources. In the future, customers currently receiving electricity themselves, and act as mini-generators.
Challenges & Opportunities:
Structural Changes: To meet the current challenges, utilities need to look towards a scope of improvement within themselves. A major cultural challenge that most power companies face, is the focus on short-term goals. Many companies deep-dive into money-saving tactics, like budget-cuts and quality compromise, but ignore the overall impact of those tactics in the long run. Additionally, managers in one department do not have visibility to the procurement of another department, creating conﬂicts in the future. Companies need to shift from a tactical view to a strategic view for procurement and operations, as well as an enterprise based structure for better results.
Inventory Issues: Similarly, the utility business is expected to have high standards of service. Therefore, a great amount of non-moving and slow-moving inventory is kept on stand-by for emergency situations, involving a big sum of capital. Also, a lot of time and inventory is being written-oﬀ, due to expiration of their shelf life or main machine replacement, with new technological advances. The concept of “just-in time” inventory, through supplier collaboration, will help avoid the cost of holding inventory for long periods. Additionally, a regular and thorough health monitor of critical machines, via predictive maintenance, is also a way of keeping the faults at bay, avoiding preventive actions.
Network Modeling: In addition, power generation is moving towards a decentralized model with non-conventional sources, such as roof-top solar panels. So, network modeling of distribution networks plays a vital role in responding to the demand of scattered customers. Tools like SCADA (Supervisory Control and Data Acquisition) and DMS (Data Management System) are eﬀective at understanding load feeder conditions. From the lens of a developing or third-world country, this approach can be very helpful in providing power to the last man. Eﬀorts like Restructured Accelerated Power Development and Reforms Programme (R-APDRP) in India are encouraging the use of technology for improving reliability and reducing aggregate technical & commercial (AT&C) losses.
Data Analytics: Power utilities need to work on analyzing data (predictive analysis) for a better response to customer demands. Additionally, this is necessary to guarantee that there is no over-generation or under-generation of power. They must move towards a “pull” rather than a “push” strategy. Cases from Texas wind farms and Germany’s renewable (solar and wind) energy sources are classic examples of over-production, making utility companies pay consumers (negative prices) for the usage of energy. Power utility companies can work with trade agreements involving blockchain technology.
Future Outlook: Since electric vehicles are coming up to speed in cost and quality with combustion vehicles, power utility companies can play an important role within the EV industry. Utility companies can leverage their existing infrastructure for investments in EV charging mechanisms. This will help boost the new EV technology, and assist utility companies in stabilizing the grid, during oﬀ-peak hours, and manage the huge demand from EV charging.
How CGN can help: CGN holds expertise in the ﬁeld of cost reduction, continuous process improvement, inventory handling, and supply chain modelling. We have worked with Fortune 100 clients improving their operational eﬃciencies, across multiple industries, creating successful partnerships, transforming these companies into successful enterprises, by producing long-term solutions to their immediate problems.
Many industrial companies utilize a structured method for product design. Continuous estimation and tracking of the product cost is very important throughout the product development lifecycle. As the product design matures, the cost structure often shifts significantly. There are various reasons for this shift, including:
- Significant customer requirement changes and
- Lack of visibility into the impact of design changes on product cost
To address various challenges with respect to cost, we will illustrate and review a method called Collaborative Cost Management (CCM) during the new product development (NPD) process. If a procurement team is not involved in the process from the beginning, supplier selection and price negotiation will be significant challenges to overcome. CGN has explored these challenges, during client engagements. In one such scenario, products were not meeting customer expectations, putting the customer in a position to accept a tradeoff between quality, functionality, and cost. Another scenario was associated with component cost increases, a result of additional functionality added.
Collaborative Cost Management (CCM) has multiple applications across the product lifecycle. Collaboration between cross-functional teams such as, engineering, manufacturing, supply chain, purchasing, suppliers during early product development phase, will help reduce costs through ongoing visibility to overall product cost and targeted initiatives to manage it. CCM helps find innovative ways to reduce costs benefitting all parties.
Once the target price is set for subsystems, CCM can be introduced in phases. Phase 1 - Pre-CCM, Phase 2 – During Design and Phase 3 - Post CCM, when cost drivers are reviewed on the ongoing basis and actions are taken to manage the product cost. The following table shows a structured approach:
Phase I Phase II Phase III Pre CCM CCM Post CCM Identify part information (Part family, category etc.) Cost Analysis, Supplier Analysis Run iterations to identify other cost drivers
Pre CCM-activities cover:
- Information collection, related to part family and category
- Establishing target costs by subsystem / major component
- Establishing baseline cost and process for ongoing review
- Analysis of scrap, Work in Progress (WIP) on high value add manufacturing process
CCM activities cover:
- Identification of potential suppliers & supplier analysis,
- Establishing supplier involvement within the product development process
- Identification of cost levers and conduct should-cost analysis
- Run Cost Lever Evaluation Matrix
(Cost Lever Evaluation Matrix is an all-inclusive tool created by CGN to identify cost drivers that is used to optimize design for cost. Matrix covers 4 areas that influence cost: design, operations, location & supplier)
Post CCM-activities cover:
- Creation of multiple iterations of the cost lever evaluation matrix, to see full opportunities
- Recording component information, should-cost analysis, supplier analysis
- Defining and managing cost reduction action items
- Achieved cost reduction savings of 33% through supplier collaboration*
- Better price points through a cross functional collaboration approach
- Cost effective, optimized design and a good quality product
CCM SUMMARY: Strengths Short-Term Benefits Long-Term Benefits 1. Cost focus – Early NPD stage
2. Active collaboration within cross-functional teams
3. Captures Cost drivers throughout product value chain 1. Identification of Cost Levers
2. Supports supplier negotiations
3. Improves collaboration across all workstreams (Supplier, Engineering, Purchasing, Supply chain & Operations) 1. Provides direction to strategic sourcing initiatives
2. Product cost efficiencies – margin improvement
CGN brings an all-inclusive CCM methodology where clients are encouraged to have effective collaboration between cross-functional teams during early NPD phase of the product thus bringing significant benefits in product cost and product development efficiencies.
*Note: Prices can only be used to set targets or negotiate when the tools are modeled to a specific manufacturing process and specific suppliers
The Consumer Packaged Goods (CPG) industry is facing huge challenges with volatile commodity prices. Customers are highly sensitive to product pricing. Customer behavior and needs have considerably changed, due to a preference for healthier foods, high sustainability, transparency and decreasing brand loyalty. The industry is also experiencing limited pricing power; due to retailer consolidation. Amazon’s purchase of Whole Foods, along with Walmart’s purchase of Jet.com, have broadened their horizons, by operating retail stores and ecommerce respectively. Rising commodity prices, customer price sensitivity, changing customer behavior, and retail consolidations have resulted in lower profit margins. To improve margins, CPG companies should not only focus on cutting costs, but also on the following areas to be innovative, remain competitive and drive growth.
Digital transformation: Digital technology has influenced customer behavior and allows CPG companies to engage with customers on a more personal level. Many CPG companies are relying on digital marketing to connect with customers, understand customer behaviors and preferences, and promote their brand. Very few businesses have started down the path to digital transformation, eliminating tremendous opportunity from directly engaging with customers. Using digital technology for CPG holds several advantages, including, but not limited to, e-commerce, digital marketing, managing customer relationship, big data analytics, location based services, and digitally managing entire supply chain activities, from order processing to fulfillment. Companies are utilizing location based services to collect real-time data on customer locations, from their mobile devices, and wearables, to offer nearest store information, proximity based advertising and product promotions, and weather and travel information.
Omni-Channel: Increasing online sales and intense competition have led CPG companies to look for new ways to sell their products, in addition to the traditional retail route. Omni-channel is an integrated business model to satisfy customers with a seamless shopping experience, across multiple channels including, online, in-store, and mobile. As CPG companies continue to expand globally, the traditional retail infrastructure is not extensively available in developing countries, requiring set up of ecommerce preferred way to sell. CPG companies are continuing to partner with retailers to sell their products online, specifically through the retailer. To establish connections and build relationships with customers, CPG companies also prefer to sell directly to customers (DTC) vs. selling through retail. Unilever acquired Dollar Shave Club to sell shaving products directly to customers. In the near future, CPG based companies will need to establish a cost effective and agile omni-channel supply chain to increase product distribution at a more cost-efficient rate. CGN Global collaborated with a global sweetener vendor, who operated an omni-channel supply chain to optimize their product distribution network and improve their operating capacity, resulting in EBITDA of $31 million.
Figure 1: E-commerce share of total global retail sales from 2015 to 2021 (Source: eMarketer)
Customization & Personalization: Henry Ford famously said, “A customer can have a car painted any color, as he wants, so long as it is black.” With increased customer preferences, such as ingredients, flavor, pack size, color, and rapid advancement in technology, customers are looking for customized products and services. CPG companies should shift their focus from mass economic production, to developing customer centric marketing and delivering customized products and services. Companies collect large amount of data on their customers, but are not yet effective enough to channel customer preferences into greater product customization and more return business. This can only be achieved through understanding customer preferences and making technological advancements, such as artificial intelligence, data analytics, inbound marketing and automation to deliver personalized marketing content to customers.
Global expansion: CPG global expansion, especially to developing countries, could easily generate growth. As growth in developed countries continues to stagnate, growth in emerging countries continue to increase. Additionally, developing countries are seeing greater significant increases in the middle class than developed markets. To expand globally, CPG is using various strategies such as M&A or partnerships with local brands. A strategy for expansion into new markets should include introducing new products aligning with local customer preferences. For example, Unilever offers various local brands under food and drink, home care, and personal care categories in India.
Finding the right partner to lead the way The four areas listed above are just the beginning of the new CPG landscape. To succeed in the new CPG environment, businesses will need a firm with the speed and agility necessary to meet these high demands. CGN has extensively worked with various clients in retail and consumer goods such as Kellogg’s, Mondelez International, Kraft Heinz, Coca-Cola, Estee Lauder and T a t a Tea, guiding growth and improving their bottom-line. Based in the Americas, Europe and Asia, CGN is the trusted advisor to Fortune 500 companies, with a proven track record of innovating and transforming global brands towards increased stability, greater revenue, and overall competiti