In the recent past, consumers have been the driving force sustaining the economy. As cut throat retailer competition held down prices, consumers took advantage of perceived good value for money. When consumers put pressure on retailers, CPG manufacturers feel that pressure multiplied many times. The manufacturers of the packaged goods we buy in supermarkets often call themselves CPG or FMCG manufacturers. These acronyms stand for Consumer Packaged Goods or Fast Moving Consumer Goods.

Discrete manufacturers, such as Automotive and Aerospace companies, are at the forefront in adopting the Product Lifecycle Management or PLM concept. They strive to create a systematic and repeatable approach to new product introduction, where all the stakeholders in the product are able to share information, and make the necessary design trade offs.

We have no doubt that adopting this concept means a change for the better in the design process. However, simply implementing a Product Lifecycle Management software product does not make the change happen. Just as with earlier Product Data Management or PDM solutions within the design office, the people issues are more important than the technology issues. The management and staff have to accept a change in work practices, supported by software.

There are several vendors of Product Lifecycle Management products. They enjoy a reasonable number of successful, and a few unsuccessful, implementations in discrete manufacturing industries. Recently, several Consumer Packaged Goods manufacturers announced that they would implement PLM solutions. For example: Playtex Products works with Agile; Proctor & Gamble has built a specification management system built on MatrixOne and a system to handle packaging design with UGS PLM.

This trend has implications both for discrete manufacturing users and for vendors. Users may be able to implement business initiatives that provide improved service to their customers because their customer facing processes get software support. Vendors, if they can satisfy the CPG pioneers, will be able to spread development costs over many more customers.

Of course, all cats are not grey. Among CPG manufacturers there are two distinct business models for branded goods and for unbranded goods. Manufacturers of branded goods spend heavily to advertise them, which creates demand. Retailers need to stock these products to bring consumers into their stores. Such products command a premium, even if the margin for the retailer is smaller. The design of the packaging has to convey the brand's values. Promotional activities need careful co-ordination between manufacturer, supply chain and retailer. The manufacturer will try to stretch the brand by producing variants of the core product for market niches, such as baked beans for a particular diet regime. The retailer tries to optimize the shelf space to margin ratio.

The primary problem for manufacturers of unbranded goods is to leverage their relationships with retailers to ensure continuous distribution of their products. Most of the advertising costs lie with the retailers. For existing products, minimizing costs, while maintaining the specification is a key issue. Retailers often collaborate with existing suppliers to specify new lines which they believe will improve volume and margins. They will place orders for these new product lines. The problem for the manufacturer is that they may be substituting one product line for another on the same shelf space and not increasing revenue overall. For example, replacing baked beans in Italian tomato sauce with baked beans in Spanish tomato sauce.

On-line sales over the internet are a potential threat to existing business models although this is an interesting opportunity for most CPG manufacturers. Typically, retailers get the cash from the customers before they have to pay for the goods they have sold. In effect, retailers' working capital is provided by the manufacturers. On-line sales could dramatically reduce the capital needed by CPG manufacturers as they get the cash from consumers much earlier than in current business models. However, although on-line sales are already significant, it will be some time before they will become large enough to affect relationships.

Both sets of CPG manufacturers have many common processes, which must integrate tightly with the retailers' processes. The products usually have low unit prices. Packaging and supply chain costs are a significant fraction of the total finished product cost. Production runs are long and product lives for successful products are very long. Procurement departments work tirelessly to remove a fraction of a cent from each unit's direct materials. Manufacturing processes and the product specification are very tightly interwoven. It is worth investing heavily in process automation and machinery and therefore working very closely with the suppliers of these machines.

None of these processes would seem out of place to most modern discrete manufacturers. They all fit into the concepts of lean manufacturing, customer centric processes and mass customization. The words may be different: "formulation" rather than "bill of materials"; "by products" rather than "scrap", but the basic principles are the same.

Manufacturers share a passion for their products. They prioritize business initiatives in order to improve the basic value that their products provide to their customers. Product Lifecycle Management as a concept supports these initiatives. Some do not need software support, for example, the introduction of co-located multi-disciplinary teams for each product line. However, taking this argument to its absurd but logical conclusion would mean all automobile engineers living in Detroit!

Most decision makers agree that business initiatives work better with software applications support. Software from vendors of "PLM solutions" and earlier "PDM solutions" succeeded in supporting a wide range of initiatives. In the aerospace industry, for example, these include parts rationalization and digital mock up. There can be enormous benefits from initiatives that get workers in different areas working together more effectively. Assembly line workers in aerospace are called aircraft fitters because, until recently, they had to adjust the parts supplied to fit the specific aircraft being assembled. Now, because the designers and fitters collaborate with support from digital mock up solutions, the parts fit first time.

CPG manufacturers have different priorities when they adopt PLM. They worry much more about the supply chain, the packaging and retailer issues. For example, they may have a "design for supply chain" business initiative, where the product team focuses on maximizing the number of units that can be shipped on one pallet. Alternatively, they may make sure that the consumers' out of the box experiences, when they take the product home are so excellent that there are zero returns.
We often talk about best practices. One fundamental best practice is a simple one -never be satisfied with the status quo; always seek further improvement. As discrete manufacturers consolidate the benefits from earlier business initiatives, supported by PLM software, they seek further improvements from new business initiatives. Examples include portfolio management and after sales service. Another interesting option is to apply initiatives pioneered in CPG.

Some discrete manufacturers, such as HP's Vancouver printer unit, already adopt "design for supply chain". Design team trade offs include the "total landed cost" of the product in the stores, taking into account supply chain and retail costs. This focus has enabled considerable improvements in HP's most profitable business unit.

Mike Evans

First appeared in the EA Report, Expert's View, April 2004

back to top