Twist in the tale for CPG distribution
For a Consumer Packaged Goods (CPG) company with global growth ambitions, there’s no way emerging markets aren’t on the agenda. Yet, many dreams sour when confronted with the reality of these markets, especially their institutional voids. From the CPG industry’s point of view, the most significant void is the absence of an organized retailing governance structure providing visibility into secondary sales – a void rarely encountered in the developed world.
In massive markets, such as India and China, where the consumer goods business model is hugely reliant on an enormous network of intermediaries running into thousands, and retail outlets several times that number, this information gap can be debilitating.
CPG firms have traditionally relied on ERP solutions or custom-localized platforms to integrate with their distribution channels, often, helplessly enduring the inescapable travails of high maintenance costs, resistance to integration, poor scalability and inflexibility. But, in emerging markets, this is not viable. The distribution ecosystem, consisting mainly of small, traditional businesses, stockists, wholesalers, sub-agents and the like, is inadequately skilled on the technology front, and lacks the confidence to adopt these complex systems.
An antidote has emerged in the form of a first-of-its-kind trade management business platform, with Business Processes Outsourcing and Software as a Service on the Cloud to knit together the distribution ecosystem for CPG companies. Globally, this can be leveraged to align the CPG distribution strategy across all markets - emerging or otherwise. The modus operandi is irresistibly simple: Create wins for every intermediary - starting from the smallest retailer, working upwards along the supply chain of sub-distributors, distributors, wholesalers, and, finally, the CPG company itself.
It all starts with gathering distributors’ data – stored in different formats within systems varying sharply in sophistication – to create a single unified view of demand across markets. No matter what shape the data is in, its variable frequency, or how archaic the originating system, the platform is able to standardize the information. Distributors can continue to work with their existing systems to upload data on to the Cloud (at no cost) through an incredibly simple user interface. In tandem, fully-managed service, in the local language, help the not-so-tech-savvy distributors adapt to this rhythm of data uploading.
Over time, the CPG company can mine this store of distributor data to understand sales patterns (by Stock Keeping Unit (SKU), by distributor, by retailer) and consumer behavior, based on which demand forecasts, inventory management plans or trade activities can be formulated. Distributors appreciate the edge this creates for their business. This CPG firm replenishes inventories at various distribution points proactively, rather than merely in response to orders. Early adopters of trade management platforms have seen case fill rates, and consequently revenues, jump between 8 and 10 percent, and a double digit percentage improvement to the business bottom-line.
In a very large emerging market, like India - where there are over 10 million “high frequency” (read mom and pop) stores - the top CPG companies engage with only 40 percent of these outlets directly or through their appointed distributors. Most stores either procure supplies from other intermediaries, or go without. Maximizing retailer coverage is a common goal for both CPG companies and their distributors. That’s why the business platform prioritizes order acquisition. It enables currently excluded retailers to place orders directly with the CPG company via mobile, using text messaging or a downloadable app. Upon receipt of the order, the company routes it to an appropriate distributor, who acquires a new customer without having made any sales effort. A smart solution that benefits the CPG company, distributor and retailer, all at one go.
That being said, the platform is much more than a lens to look inside the distribution black box. It is arguably, the way forward for CPG companies to build their enterprises of tomorrow. Let’s substantiate that claim with an example. A global consumer products company has a stated mission of acquiring 1 billion new consumers in emerging markets by 2015. The math is simple, and translates to a few thousand additional distributors, or roughly, one new distributor per day over the next few years. The task of onboarding these distributors, employing different processes and systems, within that time frame is unimaginable to say the least, and impossible in the absence of total and complete standardization. The platform can realize this vision. It provides ERP capability on the Cloud, with pre-packaged, standard processes for ordering, invoicing, shipping, claims management, trade promotion et al, that the CPG company can offer to distributors in the form of IT as a Service.
Regardless of location or line of business, distributors are then subject to standardized processes and terms of trade which enable the company to onboard them seamlessly. This arrangement also streamlines time-consuming operations, such as claims, which can now be managed at the click of a button. For the CPG firm, this is the path to global conquest, whereby a best practice in Brazil can be introduced in all other countries within hours, seamlessly and effortlessly, or a trade promotion can be launched – or rolled back – worldwide, on the same day.
Although intermediaries dominate consumer products distribution, in emerging markets, modern trade and retailing formats have started to make inroads. Accordingly, the platform caters to the needs of chain stores, hypermarkets, and other large format stores. These capabilities are in the area of trade promotion effectiveness (which is rarely measured) and in-store consumer behavior. For instance, the platform accesses information from “intelligent displays” to indicate the number of customers who stop in front of these, the number who pick up a product, and finally, the number who actually buy. It also paints heat maps tracing shoppers’ purchasing activity to identify demand, or monitor smart shelves to issue alerts on impending stock-outs.
Besides creating visibility, at every stage, the platform future-enables traditional distribution in ingenious ways. For instance, it can connect a company’s network of intermediaries through a mobile-based social networking forum, which can not only be accessed through smartphones but also by feature phones through simple text messaging. A closed digital wallet for the exclusive use of the company and its family of distributors is available to channel cash flows – unimpeded in both directions – quickly, saving transmission costs and time. Distributors can track expenses and inflow at a glance, by sorting spends into folders within the wallet. In conjunction with the social networking platform, the wallet opens doors to P2P (Person to Person) payments between intermediaries, as well.
As most tales go, this one’s also got a moral - New, mostly untapped, markets are waiting to be conquered by CPG firms willing to take innovative steps to fix their distribution woes. And, as for the tale itself, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.
The author, Samson David is VP and Head of Business Platforms at Infosys Ltd.
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