Digital transformation has become a critical focus for supply chain management across various industries, especially in the Fast-Moving Consumer Goods (FMCG) sector. A recent survey made in collaboration with Reuters found that digital transformation is a high or top priority for 75% of FMCG companies. The same survey found that only 12% of respondents feel their organisations’ technology investments fully meet the need of their supply chains. However, simply increasing digital investments will not lead to desired results if those investments are not followed by developments of capabilities that will drive those investments.
It is essential for FMCG companies to dive deeper into what digital transformation truly means for them. It is not merely about adopting new technologies – it is about understanding the underlying objectives. What are businesses striving to achieve through this transformation? Once these goals are defined, it becomes evident that the conversation should shift towards business transformation through digital enablement, rather than only digital transformation.
Enabling agility and visibility through digital transformation
As the global landscape continues to evolve, companies are investing heavily in digitalisation to enhance agility, efficiency, and their ability to respond to the changing market demands. For instance, growth of machine learning (ML) market in Europe is expected to maintain double-digit growth until at least 2030, and 35% of businesses anticipate ML and artificial intelligence (AI) will impact their supply chain. While generative artificial intelligence (GenAI) is showing use cases for content generation and personalisation to boost consumer engagement, it holds similar potential for engaging decision-makers in supply chain. However, at the moment roughly 30% of supply chain professionals report having low or limited GenAI expertise.
We see leading FMCG companies using these new technologies to streamline operations and drive competitive advantage – for example to drive dynamic inventory close to consumer against maximised revenue potential, responding proactively to changes in supply and demand.
And these efforts are bringing in quantifiable results – retailers using AI and ML performed better than their competitors in both 2023 and 2024. Companies using these technologies saw their sales grow at double the rate of those that have not made the same investments, together with an eight percent annual profit growth.
Besides sales and profit, FMCG companies continue to measure success using traditional supply chain lagging and leading indicators, such as cost efficiency, time to market, inventory turnover, and customer satisfaction. Here, advanced technologies provide even more opportunities. When IT executives working in consumer brands were asked about the biggest benefits of Artificial Intelligence, top answers included productivity, operational cost reductions, and faster time to profitability.
While these metrics provide a comprehensive view of performance and help companies identify areas for improvement, FMCG companies are also looking at newer measures of success. “Measuring supply chain resilience and agility are essential considering the volatile, uncertain, complex, and ambiguous (VUCA) world companies operate in – and companies need to find a way to balance risks versus agility,” adds Sorensen.
And at the core of the whole digital transformation lies visibility, however, FMCG companies need to go beyond visibility and arrive at a point where they can use this visibility to drive actions. A recent survey in collaboration with Reuters found that companies with high-performing supply chains had greater visibility across the multiple segments of their supply chain, particularly across time-sensitive points of potential disruption.
"Before Covid, discreet visibility was enough, and the world was scheduled to a dot. Today, it’s about constant replanning – timelines for production and getting the product on the shelf have shifted. Companies need to connect visibility across the entire supply chain, and based on that visibility, see what decisions they can automate to be prepared for all scenarios,” continues Sorensen.
Digital transformation for FMCG in 2024 and beyond
Digital technologies have been impacting the FMCG industry for years and will continue to do so beyond 2024. While generative AI currently represents 9% of the overall financial impact on the retail industry in 2023, that number could climb up to 78% by 2029.
“Apart from fostering innovation, AI and ML are essential for predictive and prescriptive analytics for demand forecasting. These technologies have the potential to enhance collaboration across the supply chain, as well as improve customer engagement, which is why we should really be talking about digital enablement and business transformation, rather than simplifying it to only digital transformation,” says Sorensen.
Companies can no longer rely purely on historical data for demand and inventory planning. Annual and quarterly demand forecasts can hep companies anticipate seasonal fluctuations, holidays, and peak seasons, but having access to real-time demand data can – beyond helping prepare for short-term fluctuations – allow companies to sense future demand and plan in advance.
And according to Reuters survey, accurately predicting demand is what 41% of FMCG companies believe will improve their supply chain resilience the most, and 47% list forecasting as one of the technologies prioritised for investment in 2024.
As the world FMCG companies operate in remains increasingly complex, market dynamics, consumer preferences, and lead times are going to continue to change. By predicting consumer preferences, companies can align their production schedules more closely with actual demand, reduce overproduction and stockouts, and improve time-to-market. By having a comprehensive planning approach with strong emphasis on collaboration across the supply chain, FMCG companies can efficiently face market fluctuations and maintain a steady supply chain flow.
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