Colin Elkins is IFS’s process manufacturing specialist and has over 20 years’ experience in ERP software solutions for the sector.
Grocery shelves worldwide are dominated by a cadre of major global consumer packaged goods companies, but their products can often perform poorly in corporate social responsibility areas. The long-familiar products that benefited from decades and billions of ad spending now must be re-engineered -- or industry giants must diversify into healthier, fresher and less packaging-intensive products.
This is supported by recent research that revealed 75% of shoppers would switch to a brand that provides more in-depth product information beyond what is provided on the label, up 39% from 2016. The same percentage of shoppers would pay more for foods with clean label ingredients. Millennials, Generation Xers, Hispanic and Asian shoppers and those with a household income of $100,000+ are the consumers driving this shift. What represents concern for the biggest industry players, offers insurgent companies the chance to prosper from new customer preferences.
Big industry players grapple with responsible packaging and supply chain visibility
Technology initiatives are underway to help coalitions of major food marketers satisfy customer demand for more responsible packaging and supply chain visibility. For instance, OpenSC uses blockchain technology that enables users to scan a QR code on a product or restaurant menu and view the full history of a food product. Nestlé, Procter & Gamble and PepsiCo are partnering with TerraCycle to launch Loop, a new global recycling service which aims to replace single-use packaging with refillable receptacles delivered to the home.
These efforts are, of course, preliminary and seem designed to ensure the companies that dominate the industry today continue to in the future. It may be more likely that as major brands grapple with this change, there is opportunity for insurgent companies and products to steal market share and shelf space as industry shifts force global leaders to retool.
Outdated software and Excel spreadsheets remain a problem
One barrier to the industry giants’ ability to meet the demand of the woke consumer is that the software underpinning their business operations from a financial standpoint is disconnected from the systems used to source raw materials, formulate recipes and manufacture products. Information on where raw materials came from, what batch of product they went into and the history of product in a given package are often in different systems, from Excel spreadsheets to manufacturing execution systems.
This disconnect means executives cannot easily see how reformulating a product for clean labeling will impact revenue. Enterprise-level software systems are not designed to easily launch new products, and the process of entering the quality testing regimen can be laborious and costly.
Shorter shelf lives mean more agile enterprise software
Working with fresh and perishable ingredients and products also means a food manufacturer must be able to plan production around orders on a daily basis. Planning and scheduling is one more thing entrenched enterprise software products have a hard time doing. They struggle to deal with the shorter shelf life that will almost certainly result from a reduction in plastic and packaging, and have difficulty providing supply chain visibility to consumers.
Rigid, ineffective enterprise software is one more strike the food and beverage giants have against them. Dated, legacy food products sold by companies with dated, legacy technology make them more vulnerable than ever to faster, more agile and aggressive challenger companies.
Consumer demand for transparency realized with technology
The companies able to challenge the CPG giants will not rely on futuristic blockchain-driven pan-industry systems that could turn out to be pipedreams. Several insurgent companies can already give consumers the transparency they require, thanks to more modern and integrated enterprise software systems.
These modern software systems are also important for food and beverage manufacturers committed to more fresh ingredients and fewer artificial preservatives, which is essential for clean label foods. Integrated demand planning and scheduling helps them keep enough raw material on hand to satisfy daily orders while minimizing waste. A new methodology, demand-driven materials requirements planning, enables manufacturers to create strategic buffers of raw materials so they can still satisfy surprise orders or demand increases driven by new retail accounts or weather patterns.
Clean labeling needs documented success
Manufacturers are also frequently required to document the sustainable origins of specific ingredients like palm oil, the harvest of which is linked to loss of biodiverse rain forests in Asia, Africa and Central America. The impacts of large-scale palm oil plantations on native flora and fauna species, loss of peat bogs that help mitigate global warming, and water quality degradation caused by palm oil mill effluent are real and troublesome.
To combat this, industry stakeholders formed the Roundtable on Sustainable Palm Oil, which implemented global standards for responsibly produced palm oil. Growers avoid planting new acreage, but rather work to increase output from existing plantations and opt to plant in areas that are not previously forested.
Now, retailers in Europe and increasingly elsewhere in the world are requiring certain percentages of RPSO-certified palm oil in products they place on shelves. Food and beverage manufacturers can meet this demand by leveraging powerful supply chain and batch traceability to provide thorough, authoritative documentation on the origins of each ingredient and the percentage of certified versus non-certified palm oil in each batch shipped.
Act quickly to meet woke consumer demands
While major CPG companies form alliances and experiment with blockchain as workarounds for their own inadequate software systems, insurgent companies with more flexible and agile processes are better-positioned to give woke — societally aware and health-conscious — consumers the product transparency they demand. Enterprise software, too, will give them the agility to handle fresher, less shelf-stable foods in packaging that may keep it viable for a shorter period of time.
This disruption in the food and beverage industry represents an opportunity for insurgent companies to take over. Ambitious food and beverage executive teams can now beat giants in the market with the fresh, traceable and responsible options consumers demand.