The speed of change and a sense of urgency will drive the evolution of the value chain over the next decade.
Is the industry ready? Are you ready?
When Dutch retailer Royal Ahold opened its first store in Shanghai in 1996 it took just three years for Chinese consumers to adapt to a new way of shopping—that is, not buying the livestock at the “wet market” anymore. “This was three times faster than the 10 years it took for Europe to make the shift from service shops to supermarkets in the 1950s,” said Ruud van der Pluijm, Vice President, B2B eCommerce, Royal Ahold. “How much faster will those kinds of changes take place on our way to 2016?”
This rapidly accelerating speed of change and a sense of urgency about the future led the GCI to enlist the help of leading retailers, consumer products manufacturers, logistics service providers and technology companies to develop a vision of the future value chain. The premise was that by 2016 the retail and consumer products industry will have changed, but in what ways?
To answer that question, it’s necessary to consider both the external and industry forces driving change and
their impact on the value chain. The key contextual or external trends that will shape the industry in the coming 10 years can be grouped into five areas:
■ Economic issues, including the reshuffling of the world’s top economies, the growing gap between industrialised and developing countries, as well as a focus on social responsibility among the more
developed countries in areas such as fair trading.
■ Ecological issues, including energy and fuel scarcity and efficiency, sustainability and waste management.
■ Changing demographics, such as the shift in global population, urbanisation and cross-border migration.
■ New technologies, such as virtual reality, quantum computers and information networks, have the potential to make data, people and objects accessible everywhere and immediately.
■ Regulatory forces, including extended legislation on health and wellness (for example, labelling of
products) and privacy standards.
While these trends are largely outside the control of the industry, retailers and consumer products companies
must consider the impact of these external forces on their business and determine how best to respond to
the changes that will be brought about as a result of their impact.
At the same time, there will be key industry trends that will affect the future value chain, particularly in the areas of consumer behaviour, information flow and product flow. These include the emergence of the “smart consumer,” differentiation of the buying experience, rich-media information, greater personalisation, the shift from products to services and solutions, and the commoditisation of quality. In contrast to the external or contextual forces, the industry does have the power to shape these internal forces.
Inventing the Future
The convergence of these external and industry trends will drive the evolution of the value chain. Turning this
vision into reality will require that the industry focus on six critical areas of opportunity for growth and improved performance.
1. Shopper dialogue: The industry has an opportunity to better serve shoppers by creating a two-way dialogue with them, helping them make more informed decisions, and linking the store and the home with emerging in-house and consumer technology.
2. Information sharing: Companies must be prepared to share standards-based data free of charge. Sharing information (such as supply chain events) between trading partners will result in an improved information flow and, as a consequence, improved collaboration to better serve the consumer. A resulting collaborative information platform could become the basis for further supply chain solutions, like demand-driven ordering and collaborative promotion planning.
3. Synchronised production: The industry must use the improved dialogue with the household and the technological connection with the customer to help the industry make more informed decisions, share plans and better synchronise production with actual demand. This also relies on full integration of upstream suppliers of raw materials, ingredients and packaging. Distributed manufacturing, flow consolidation and a “final assembly” model may play a role in the move towards “lean” production.
4. Integrated logistics/home fulfilment: As the industry is confronted with less available energy and fuel, more city regulations, increases in working capital and a sharp rise in home shopping, it will move from retailer brand-centric logistics to geographic-centric logistics. Strategies will include consolidated distribution, dynamic route planning, and more effective transport sharing and backhauling.
5. Sustainability: Sustainability aims to achieve a higher quality of life for everyone. Economic development, social development and environmental protection are mutually reinforcing components. The three key objectives are: eradicating poverty, protecting natural resources and creating sustainable production and consumption.
6. Company cultural and behavioural changes: Building the new value chain vision starts with information sharing within and between enterprises. Other critical cultural and behavioural changes will include organisational development, improved trust, and new measures and rewards to support the better alignment of strategic and tactical thinking.