The Role of Business Analytics in Optimising the Fast Moving Consumer Goods Value Chain

The Role of Business Analytics in Optimising the Fast Moving Consumer Goods Value Chain

THE ROLE OF BUSINESS ANALYTICS IN OPTIMISING THE ROLE OF THE BUSINESS FMCG VALUE ANALYTICS CHAIN IN OPTIMISING THE FMCG VALUE CHAIN Table of Contents Introduction... 1 The Benefits of Business Analytics... 2 The FMCG Value Chain... 3 Consumers... 3 R&D... 4 Marketing... 5 Sales... 6 Production... 7 Logistics... 8 SAS Business Analytics Framework... 9 Data Integration... 9 Analytics... 10 Reporting... 10 Summary... 10 About SAS... 11

Introduction Since the early 1990s the Fast Moving Consumer Goods (FMCG) industry has been moving from a manufacturing push to a consumer pull strategy. In the past, companies would make the products they thought consumers wanted and needed to purchase, and would push those into the marketplace. If the products didn t sell they would discount them until they sold, which reduced margins and lowered profits. Today, FMCG manufacturers rely on consumers pulling products through the supply chain, which requires a better understanding of consumer behaviours and choice selections. Most manufacturers agree that integrated supply chain management initiatives are driving these changes in the supply chain. The accurate prediction of consumer demand has been cited as the most critical factor in the improvement of replenishment forecasts, which directly impact supply chain efficiencies. Furthermore, most companies are struggling with how to model and predict consumer behaviour along with short-term volume lifts associated with sales promotions, marketing events, economic factors and other related activities. The accurate prediction of consumer demand has been cited as the most critical factor in the improvement of replenishment forecasts, which directly impact supply chain efficiencies. Today s consumer is well-informed through instant access to product information, in particular promotions and price comparisons through the Web. This makes the task of predicting such behaviour ever more complex. The end result is potentially lower margins for the manufacturer and lower volume for the retailer when selling products at regular prices, as consumers have been trained to buy from promotion-to-promotion, stockpiling products for future consumption. Armed with deeper insights into consumer behaviour FMCG manufacturers will be able to direct R&D investment, improve the effectiveness of marketing and maximise supply chain efficiencies. Where will this insight come from? Within this paper we have considered the FMCG value chain and have identified where business analytics can impact and drive profit within this process. 1

The Benefits of Business Analytics Business analytics allows organisations to derive predictive insights to enable competitive fact based decisions. It benefits all aspects of the value chain. Figure 1: The Fast Moving Consumer Goods Value Chain Kimberly-Clark, the FMCG giant, embraced business analytics with far reaching benefits Renee Nocker, former IT Director at Kimberly-Clark, needed more than the power of her conviction to make the business case for piloting what could become significant changes to Kimberly-Clark s business processes. She needed quantifiable business impact to get the attention of her stakeholders. But how do you anticipate the return on investment of process improvement? We asked the business leaders to quantify what the new capabilities would mean for them, says Nocker. For example, it will generate x million in new sales, reduce inventory by x amount. Based on that, I put a stake in the ground and said I would deliver $5 million in business benefit in this endeavor. At the end of year one, we actually delivered about $23 million worth of business benefit. For more information: www.sas.com/news/feature/challengeofchange.html An analytical approach will help us make better decisions using more finely tuned, information-driven facts in a more efficient way. It will drive consistency and speed in how we manage the levers that impact all of our business process outcomes. We need to get people focused on seeking the most optimal outcome for every decision and that can only be done with the right software capabilities and the right skills. Kimberly-Clark 2

The FMCG Value Chain Many leading FMCG manufacturers have embraced business analytics just as Kimberly-Clark has done. SAS customers are answering many business questions and, as such, tackling many business issues with business analytics, some of which are highlighted on the following pages: Consumers Business questions: Where are your consumers? Can you identify the characteristics that bond your consumers to the brands they buy? Can you segment your consumers using those characteristics and create a consumer purchase decision tree? Can you access and translate the sentiment that your customers are saying about your company, your products and your customer service? Can you share data with your retail and convenience store customers on a regular basis? With SAS you can: Integrate structured data from operational systems with unstructured data from the web, social media sites, call centres and web sites to understand what is important to consumers. Segment consumers to identify new markets, deepen understanding of category performance and how the consumer shops it. Use this insight to optimise pack sizes, develop flavours, varieties and inform above the line marketing. I ve got less money tied up in inventory, I know where our customers are coming from, how to market to them and can monitor the effectiveness of our marketing. Our ROI with SAS has been well over 100%. The Wine House The Wine House know the power of SAS To survive the recession and move the business forward, The Wine House needed to track the productivity of its extensive inventory and access current accurate customer data to better service and market to its best customers. For more information: www.sas.com/success/winehouse.html 3

R & D Business questions: How do you ensure a new product meets our standards for safety, packaging or transportation? Are you able to bring together all the data from your experimental tests and evaluate the results? How can you quickly understand if a concept has already been patented and how will that impact our potential patents? With SAS you can: Ensure quality to improve customer satisfaction. Leverage consumer data to drive new product innovation. Ensure new products are designed to required standards. Assess the likely range of uncertainty in new product launches, and plan more effectively taking account of the risks. Our SAS applications encompass the full project life-cycle of product and sensory testing. From ingredient selection to questionnaire development, experimental design and top-line reporting, SAS software cranks through all of the collected data and reports summary results. Kraft Foods Kraft Foods knows the power of analytics Kraft Foods were looking to ensure consistent flavour and appearance of snack foods by regulating production processes. In order to do this they wanted to assign numerical measurements to quantify the flavour, colour, aroma and other attributes of each product. Using SAS they evaluate recipe reformulations, product improvements and market trends, by measuring and determining the appropriate levels of chewiness, sweetness, crunchiness and creaminess. For more information: www.sas.com/success/kraft.html 4

Marketing Business questions: Can you analyse the effectiveness of each product? How do you evaluate consumer research to truly understand the impact of a new product? Can you predict where your marketing spend will provide the best return on investment? Can you predict future performance over the life-cycle of your brands? How price-sensitive are your consumers? How price sensitive are your products? How loyal are your consumers? What will make them switch to another brand and what is the threshold for switching? What are the purchase attractors for your brands? How are these changing over time and how will they map against the changing demographics of your consumers? Do you understand which marketing strategies your consumers respond to best? Can you optimise your marketing spend across the marketing mix to drive profitable volume growth and revenue? With SAS you can: Decompose market data to understand the true effects of product launches, price changes and promotions. Segment consumers by type and their responsiveness to different marketing activity. Analyse the effectiveness of your marketing spend by channel and mechanic. Decompose layered marketing activity into its component parts to understand which combinations of media and mechanics work together. Forecast demand by channel to support individual brand strategies. Understand the effects on your brands of competitive pricing and promotional strategies. Perform price sensitivity analysis to predict brand switching thresholds. As a solution for predicting and targeting marketing returns, SAS is pretty easy to justify. Every tenth of a percent that we improve our targeted marketing efforts translates into millions of dollars in savings. Williams-Sonoma Williams-Sonoma knows the power of analytics Williams-Sonoma needed a way to target customers, manage cost and increase personalisation. Founded in 1947 as a small cookware shop, Williams-Sonoma now boasts more than 2 billion dollars in sales annually. The company s strong commitment to quality and service is evident in its product mix and customer relationship management programs. For more information: www.sas.com/success/williamssonoma.html 5

Sales Business questions: Can you optimise your trade plan in order to meet your business objectives? How accurate are your demand forecasts and how easy are they to manage? How much time do you spend forecasting? Are you constantly trying to resolve internal forecasting conflicts? Are personal agendas contaminating what should be an unbiased best guess at what is really going to happen? Do you know what influences demand? Can you gauge the impact of price changes and promotions and new product launches on demand? Can you sense demand signals other than trend and seasonality (eg. price, sales promotions, marketing events, advertising, in-store merchandising), and then shape demand using what-if analysis? How do you decide what the promotions should look like? Can you understand the overall cost to serve for each customer? If a customer starts a SKU rationalisation programme, would you know which products could be sacrificed without affecting profitablity? Do you know how much space should be allocated to each product at the point of sale and where they should be positioned on the fixture? With SAS you can: Perform what-if analysis to understand the impact of external factors on the forecast and shape demand. Understand the impact of trade promotions to negotiate better customer deals and drive sales value. Largely automate the generation of statistical forecasts, allowing you to focus their efforts on the most important or most problematic forecasts. Apply analytical methods like Forecast Value Added (FVA) analysis to identify waste and inefficiency in your forecasting process. By eliminating those activities that make the forecast worse, you can improve the forecast reducing inventory and out-of-stocks, releasing working capital and driving availability to customers. Understand the profitability of your products, their contribution to the category and predict the effects of changes to distribition, switching and brand loyalty as you implement price changes, launch new products and run promotions. Analyse fixtures to ensure the correct amount of space is allocated to each product, visualise the product at the point of sale and collaborate on-line with a customer in real-time. SAS improved forecast accuracy by 6%. North American confectionery company A large confectionery company knows the powers of analytics A North American confectionery company had heavily manual processes and required an automated baseline forecast at four levels every week and on the first of every month for the entire company. 6

Production Business questions: What measures are there to ensure quality assurance throughout production? Is your production process optimised to deliver against demand? Is it integrated with the forecasting process to avoid over- / under-production? Can you identify production process costs throughout? How do you manage and predict asset maintenance to ensure minimal production downtime? How do you optimise human capital against production demands? Can you accurately plan production to avoid over-/under-production? With SAS you can: Analyse process manufacturing data to improve yields, detect problems quickly and optimise performance. Identify quality problems within the manufacturing process and take immediate remedial action. Understand, model and predict complex quality issues. Understand true product profitability and the impact of changes in raw materials. Scenario planning to optimise the manufacturing process. Increase revenues by reducing asset and plant downtime, by predicting events that can cause outages. As a consequence, maximise the use of maintenance resources to meet operational goals for profitability, safety and environmental compliance. IBM knows the power of analytics IBM has constructed one of the most advanced, error-free chip fabrication factories, in the world. The ability to quickly detect and address quality and production problems is crucial to the ongoing success of this operation. Data from all aspects of the manufacturing process including logistics, process, electrical test and defect data are collected from each production and test location. IBM engineers throughout the world use SAS to continuously access and analyse the terabytes of data as part of their quality assurance programme. SAS has been a key component of our yield learning and engineering analysis program for many years. IBM For more information: www.sas.com/success/ibm_dataview.html 7

Logistics Business questions: How do you optimise distribution channels, case size, packing and truck loading? Are shortcomings in your forecasting capabilities impacting warehouse space and workforce planning? Can you identify excess costs within the process? Can you optimise routes and transport methods to meet customer SLAs? Are you adhering to your corporate sustainability programme? How do you minimise the cost to serve a customer? With SAS you can: Reduce supply chain costs through optimisation of transportation routes. Ensure that you meet your customers SLAs whilst not increasing your costs. Measure, manage and report on the key sustainability areas environmental, social and economic indicators and determine business strategies that reduce risk and increase shareholder value and reduce costs. Logistical costs in commodities are one of the leading factors determining competitiveness. We needed to anticipate problems more quickly and take corrective steps before problems arose. Using SAS, it became easier to reduce the company s costs. Bunge Bunge knows the powers of analytics Bunge Alimentos, one of the world s largest agribusiness and food companies, with a wide product distribution network, needed a solution to improve their logistic process analysis and to reduce costs. For more information: www.sas.com/news/preleases/041707/news6bungeor.html 8

SAS Business Analytics Framework Only SAS provides data integration, analytics and reporting as part of one business analytics framework. SAS can incorporate and integrate all data required for analysis and reporting, regardless of data source or format. Figure 2: Integrated Business Analytics Framework Data Integration SAS Data Integration provides a full and flexible solution to the data integration and management challenges faced by FMCG organisations of all sizes, such as: Distributed and rapidly increasing data volumes. Inconsistently defined and poor quality data across disparate IT systems. High expectations of users who depend on the data. SAS Data Integration addresses these challenges in a timely, cost-effective manner, and supports enterprise scale projects. SAS Data Integration can: Access all your data sources. Extract, cleanse, transform, conform, aggregate, load and manage your data. Support data warehousing, migration, synchronisation, federation and provisioning initiatives. Support Master Data Management (MDM) solutions. Create real time, reusable data integration services in support of service oriented architectures and data governance. 9

Analytics SAS defines analytics as fact based predictive insight that enables more accurate decisions. Analytics from SAS goes beyond just historical reporting. SAS Analytics provides insights and reveals patterns, anomalies, key variables and relationships that provide competitive advantage regardless of an organisation s size or its level of analytics expertise. Our unmatched suite of analytics capabilities, services, solutions and delivery options can be quickly deployed to help organisations move forward with confidence. SAS competitive differentiation is built on predictive analytics that allow organisations to be more proactive in their decision making analytics that answer: What will happen? What is the best that could happen? What is the best next action? Reporting SAS expands information use to a wide community of decision makers within an organisation. Role-based interfaces make users more self-sufficient by providing the right information at the right time. This also helps reduce administrative overhead and reliance on IT and other support organisations. SAS Business Intelligence enables alerts and embedded analytics to be surfaced to key decision makers in the organisation when it s needed most. Summary Over the past 30 years SAS has been helping organisations within the FMCG sector to understand consumer behaviour, innovate new products, forecast and shape demand whilst managing costs and improving profit margins. By leveraging the SAS Business Analytics framework, analytics can impact all elements of the FMCG value chain. 10

About SAS SAS is the largest independent software company in the world. With consistent revenue growth and profitability since 1976, SAS has the depth of resources to sustain excellence in product development and customer support. While many competitors have merged, changed ownership or simply vanished, privately held SAS has remained focused on our primary mission delivering superior software and enhancing customer relationships. Global reach, local presence SAS solutions are used at more than 45,000 sites in over 100 countries including 92 of the top 100 companies on the 2009 FORTUNE Global 500 list to develop more profitable relationships with customers and suppliers; to enable better decisions; and to move forward with confidence and clarity. More than 11,000 SAS employees in more than 50 countries and 400 SAS offices provide local support for global implementations. There s garden-variety analytics, and then there s the stuff that matters. And what we have chosen to do is to put our focus on the predictive analytics, because we think that s where the value is. And the de facto, standard, best guys on the planet have been, are today, and always will be SAS. And that s why our alliance with them is so distinctive and important. Bill Green CEO, Accenture Financial strength SAS record of revenue growth in every year of our existence makes us a stable business partner. It also enables us to reinvest a substantial percentage of revenues in R&D each year so we can continually improve our products. This commitment to innovation is one reason why the overwhelming majority of our customers renew their software licenses with SAS every year. Sustainability More than being green, sustainability means that SAS takes a long-term view when making business decisions, whether they involve attracting, retaining and motivating the best employees; serving customers; or caring for the physical environment. From LEED-certified buildings to a solar farm generating energy for the region, SAS strives to meet the sustainable demands of doing business. 11

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