WHITEPAPER REACHING THE URBANIZED, ASPIRATIONAL WORLD CONSUMER A Next-Gen Approach for an Agile Supply Chain
CG companies face flat or slow growth in established markets; in CGT s 2016 ranking of the Top 100 Consumer Goods Companies, prior year revenue losses once again outnumbered revenue gains. This has many CG companies turning to emerging markets. Along with opportunity, these markets present challenges in infrastructure and IT sophistication and variations in business practices and regulations. But global mega-trends also play a critical role in how CG companies must approach emerging markets. As the world population rises, a growing percentage is urban and middle class. These new consumers are attractive to CG companies, but they are also demanding and difficult to reach. Brands must find a way to penetrate these markets while maintaining profitability. THE STATE OF GROWTH Opportunity in emerging markets can be significant. In its first half 2016 report, for example, Unilever reported underlying sales growth of 8% in emerging markets compared with 4.7% overall. But identifying target markets requires staying attuned to rapidly shifting economic trends. While BRIC countries (Brazil, Russia, India, China) have been popular locations, in recent years Brazil and Russia have changed significantly. India remains strong and is being joined by Turkey and Indonesia as attractive targets, while opportunities in Latin America are still developing. However, targeting countries may be too simplistic an approach. We re starting to see growth patterns emerge in a more micro fashion within countries, within cities, within regions, says Gary Hanifan, Managing Director, Accenture Strategy. GLOBAL URBANIZATION Urbanization trends are another reason CG companies need to employ micro-targeting in their emerging market strategies. According to UN data, the percentage of world population living in cities will rise from 54% in 2014 to 66% in 2050. Hand-in-hand with this trend is a rise in the middle class. For example, EY projects that by 2030, twothirds of the global middle class will live in the Asia- Pacific region, up from just under one-third in 2009. DM share EM share PAGE 2
As people move from rural, largely agricultural economies into more industrialized cities, they begin to reach income levels that can support global brand penetration. One of their first purchases is mobile devices. In terms of marketing opportunity, the combination of higher income and mobile ownership quickly reclassifies large segments of the population from difficult-to-reach to highly connected. Accenture research indicates that 25% of the world s economy will be digital by 2020. This means consumers will be more connected than ever before and better equipped to tell companies what they want when they want it. And because there s a density of consumers in the urban area, it allows companies to have a larger demographic by which to grow their business, says Accenture s Hanifan. This represents a prime opportunity for CG brands to capture the aspirational consumer as they are seeking new status. However, successfully forming these relationships requires deep understanding of their behaviors and values, which differ from developed markets. Brand messaging, packaging, personalization, routes to market all need to be considered in reaching this new consumer. Some of the major trends characterizing this emerging middle class include: High interest in product sourcing and sustainability and therefore visibility and trust. Preference for authenticity. Need for assurance that the product will be easily and reliably available. Concerns about quality, particularly where regulation is low and recalls frequent. As with developed markets, a preference for local discovery and social sharing versus mass advertising. EMERGING MARKET SUPPLY CHAIN CHALLENGES Reaching pockets of newly urbanized and middle class consumers has considerable implications for consumer goods supply chains. Emerging markets present a broad range of challenges that may be absent or much less acute in markets a CG company currently serves: Transportation Infrastructure: This can be poor and overtaxed, driving high variability in lead times and risk to reliability and security. Supporting an urbanized area may demand six to 11 different routes using roads of varying quality, waterways, bike paths, and so on, requiring flexible, multi-tier distribution networks. This also impacts packaging: Unit sizes must suit limited supply chain or residential storage capacity or transport on a bike, for example. Multi-Layer, Fragmented Distribution: Some markets feature many points of retail presence with a high degree of cost variance and as many as four layers of distribution. Port Congestion: Understaffed facilities and long dwell times cause delays that ripple across the supply chain. ACCENTURE RESEARCH INDICATES THAT 25% OF THE WORLD S ECONOMY WILL BE DIGITAL BY 2020. THIS MEANS CONSUMERS WILL BE MORE CONNECTED THAN EVER BEFORE AND BETTER EQUIPPED TO TELL COMPANIES WHAT THEY WANT WHEN THEY WANT IT. GARY HANIFAN, MANAGING DIRECTOR, ACCENTURE STRATEGY PAGE 3
Communication Limitations: Many developing markets cannot rely on sufficient and reliable land lines. Mobile, however, is quickly becoming pervasive. Transient and Fragmented Populations: Newly arrived city dwellers can change addresses often, hampering to-the-home delivery. Different segments may have different needs from the same resources: One Japanese convenience retailer, for example, turns its inventory several times a day with different types of merchandise to serve multiple constituencies. Political Disruptions: These can freeze markets and impede inventory flow. Economic Barriers: Governments often struggle to finance improvements or even maintain infrastructure. Supply chain partners may lack cash flow to support long pay cycles. Labor Issues: These include child labor and inadequately skilled or poorly located human resources. Limited IT Capabilities: Contract manufacturers and transportation and logistics providers often lack mature enterprise systems, B2B integration capabilities, and tracking/control systems that provide automatic updates. Many use paper-based processes. Regulatory Variability: Emerging markets are seeking to catch up in areas such as chain of custody and traceability, but rules can vary widely within a region. SUPPLY CHAIN BEST PRACTICES FOR EMERGING MARKETS Despite these challenges, CG companies are successfully penetrating emerging markets. The key is to approach the job holistically and without old market ideas. In fact, emerging markets can serve as a greenfield for new brand-wide concepts. It s important for every company to start with the consumer and work backwards. Companies that are three to six degrees of separation from the consumer can now have visibility to what the consumer is doing and what the end product or service is, says Accenture s Hanifan. By understanding the consumer, they re able to anticipate where the consumer is going and tailor their investments and growth plans accordingly as opposed to reacting from four or five generations removed. Here are some emerging market best practices to serve this urbanized, aspirational new consumer: Creative Financing: Consider financial, material and information flows holistically. In addition to financing payment terms, CGs should consider sharing full visibility to inventory levels and orders with local banking partners to provide suppliers with risk-adjusted supply chain financing mapped to the velocity and flow of the network, such as early payment or in-line financing based upon what s in work-in-process and on order, not just what happens at invoice. Sensors and Monitoring: CG companies can tap the ubiquity of mobile devices to compensate for IN ITS FIRST HALF 2016 REPORT, UNILEVER REPORTED UNDERLYING SALES GROWTH OF 8% IN EMERGING MARKETS COMPARED WITH 4.7% OVERALL. PAGE 4
the lack of sophisticated local IT. The combination of sensors on pallets and containers, GPS and mobile apps on driver phones can provide hypergranular visibility to support tracking, traceability, chain of custody, security and anti-counterfeit. CG companies should establish flexible comanufacturing and co-packing relationships on a regional level, as well as strategies such as leveraging consolidation and packaging close to ports to optimize outbound shipments. A network approach enables CGs to rapidly reconfigure the network according to demand, while reducing the risk of supply chain disruptions. This requires supply chain orchestration capabilities, centralized capacity and allocation decisions, as well as logistics partners that can manage cross-border trade and movement of goods. Accommodate Diverse Routes to Market: Urban locations high density of small and varied outlets and the transience of some customer segments mean CG companies must be open to a high number of go-to-market strategies. Flexible fulfillment operations can include everything from warehouses on the back of a truck to hub and spoke distribution and fulfillment centers that are within an acceptable degree of delivery time to an urban environment, says Accenture s Hanifan. In Shanghai one brand selects a manufacturing or office location and ships a large net of parcel boxes on the back of a small truck. At lunchtime they unfold the net for recipients to retrieve their own packages. Invest in Infrastructure: For countries without sufficient capital to invest in infrastructure, some CG companies are participating in public-private partnerships to fill the void, often in conjunction with other global brands and local partners. Segmentation: I ve been doing this for 25 years and the closest thing that I ve seen to a silver bullet is segmentation, says Accenture s Hanifan. Leading companies are now designing their supply chain operations around the intersection of suppliers, products and customers, then strategically applying their finite resources such as capital, computing power, people, to the segments where they have the best growth opportunities. They funnel savings into new opportunities. Top performers want a supply chain that embraces controlled volatility, that operates the most efficiently per segment, and simultaneously drives that brand and growth agenda. That s a big shift in the marketplace. Port Monitoring: A key part of responding to dynamic market conditions is to monitor ports. Applying predictive analytics to third party data such as labor, weather and traffic, CG companies can sense and respond quickly to proactively manage their networks. Resource Sharing: Most CG companies entering new markets lack sufficient volume to maximize production and logistics efficiency. The challenges of reaching micro-markets distributed across dense urban areas particularly if those locations require scaled-down packages and more frequent replenishment means CG companies may be best ACCORDING TO UN DATA, THE PERCENTAGE OF WORLD POPULATION LIVING IN CITIES WILL RISE FROM 54% IN 2014 TO 66% IN 2050. PAGE 5
served by partnering with other brands to share copackaging, logistics and transportation capacity. Shared Network Orchestration: A flexible, regional network with multiple manufacturing partners, suppliers, co-packers, logistics providers, brokers and so on, some with low IT readiness, demands a centralized, accessible, single version of the truth. According to custom research by CGT, most (60%) CG companies use a predominantly centralized IT architecture with limited market-level flexibility to serve local markets. For some companies this takes the form of a control tower model including shared services and coordination across multiple functions and partners. A cloud-based, public network-style approach brings together transaction, messaging, weather, sensor, mobile app and other data sources into a central repository, enabling end-to-end visibility and a nearreal-time view for all users according to need, with the right security and controls. It s important to take a mobile-first approach to design to ensure usability and minimize training. This approach also operationalizes traceability and regulatory compliance by providing serialization/ chain of custody visibility and record keeping, as well as collaboration, orchestration and shared insights. Extending access to consumers allows a customer with a smartphone to look up a barcode and see the product s complete path to market, inspiring greater confidence in quality and security. Choose a Seasoned Partner: Working with a logistics partner with firsthand knowledge of best practices, local trading practices and experience with all the players in an emerging market is key to minimizing risk and enabling success. The right global strategic partner offers capacity, scale and the network- and cloud-based approach required to operate an effective supply chain these dynamic conditions. A NEXT-GEN APPROACH DELIVERS AGILITY IN EMERGING MARKETS In developed markets, CG companies are fostering direct customer relationships for the first time after decades of being several steps removed. In emerging markets, CG companies can to establish these relationships from the beginning. In fact, clearly communicating value, transparency and quality is essential to winning the newly middle class, urbanized consumer. They can even take the lessons they learn back to their core markets. By establishing a shared, centralized infrastructure in which IT, finance and logistics and even marketing are managed, monitored and orchestrated together, CG companies can achieve the control, collaboration, agility and end-to-end visibility needed to understand and serve these markets. Leveraging cloud and mobile enables CG companies to make this system easily accessible to all of the new partners they will rely on to succeed. And building in signals to understand what s happening in the life cycles of target consumers will drive a more customer-driven, agile supply chain. Emerging market leaders engage experienced global strategic logistics and IT partners to make the most of these exciting growth opportunities. 60% OF CG COMPANIES USE A PREDOMINANTLY CENTRALIZED IT ARCHITECTURE WITH LIMITED MARKET-LEVEL FLEXIBILITY TO SERVE LOCAL MARKETS. PAGE 6
WHITEPAPER ABOUT GT NEXUS GT Nexus, an Infor company, operates the world s largest cloud-based business network and execution platform for global trade and supply chain management. Over 25,000 businesses across industry verticals, including adidas Group, Columbia Sportswear, DHL, Electrolux, Levi Strauss & Co., Nestlé, and Sears share GT Nexus as their standard, multienterprise collaboration platform. This enables all network participants to operate against a core, real-time and always on set of information across multiple supply chain functions, allowing them to optimize the flow of goods, funds and trade information, from the point of order through final payment. For more information please visit us at www.gtnexus.com.