May 30, 2023Ed. Note: This article was previously posted at Retail TouchPoints.
The rapid advancement of technology and social media has created a new generation of well-informed, empowered and discerning consumers. These individuals prioritize brands that not only provide high-quality products and services but also resonate with their values.
As the largest segment of shoppers, purpose-driven consumers (68%) are now seeking out brands that align with their values and lifestyles, a priority for consumers despite the recent rapid rise in inflation and cost-of-living increases. This shift in consumer priorities has led businesses to reconsider their practices and strategies, placing increased emphasis on transparency, sustainability and corporate social responsibility initiatives to capture a larger share of consumer spending.
However, challenges with prioritizing sustainability remain, as companies grapple with the complexities of measuring and reporting their environmental, social, and governance (ESG) performance. The vast array of ever-evolving sustainability standards and measurement frameworks only adds to the challenge, leading some companies to cherry-pick metrics to paint a rosier picture, while others strive to genuinely disclose their progress.
To further complicate matters, regional variations in ESG reporting requirements have sown confusion and created obstacles to effective measurement. A recent study by IBM and The Consumer Goods Forum, titled Redesigning brand values: Purpose and profit converge in core operations, reveals that although 42% of executives say they have the capability to report on their sustainability targets, only 32% can do so in real time, thus hampering their ability to make swift, well-informed decisions in this crucial arena.
So as the tide of consumer preferences shifts, how can consumer goods companies ensure that their operations are truly sustainable to tap into this growing market and, at the same time, navigate the treacherous waters of ESG reporting? IBM's Institute of Business Value (IBV) has just completed significant research into the priorities and decisions for supply chain operations and sustainability in partnership with The Consumer Goods Forum. From the insights and experience of more than 1,800 consumer goods leaders, here are several strategies and approaches that businesses can adopt.
Integrate Sustainable Practices Into Operational Strategies to Unify Sustainability and Business Growth
Consumer goods leaders agree (77%) that investments in sustainability will accelerate business growth, with 61% of consumer goods leaders aligning their sustainability and operational goals. Companies are realizing that sustainability is not just a separate goal or initiative, but rather it is something that can be integrated into their everyday operations to create long-term value for both the business and the environment.
To effectively execute against this, supply chain and operations leaders must collaborate with their C-suite peers to build a cohesive strategy that infuses sustainability into the very core of the organization's operational strategy. Organizations have already begun embedding sustainability goals across enterprise operations, including in manufacturing (84%), supply chain operations (80%) and brand strategy (80%), just to name a few.
To further advance this strategy, companies should set goals, develop a multiyear roadmap and define what sustainability specifically means to their organization.
Harness Artificial Intelligence to Assess, Predict and Obtain the Insights Needed to Reduce Waste and Fulfill Ethical Imperatives
To help deliver on the promise of operationalizing sustainability, consumer goods industry leaders are expected to increase their technology budgets by 34% in the next three years. Advanced technologies such as automation, analytics, IoT, AI and intelligent workflows are considered critical for delivering differentiating business results and aiding in sustainability.
One key process consumer industry leaders are leveraging is AI-enabled workflows (70%). By using artificial intelligence to streamline tasks that would otherwise require human intervention, companies can boost efficiency, curb waste and optimize resource utilization. For example, precision agriculture leverages AI-driven systems to analyze data from various sources, optimizing irrigation, fertilizer application and pest control to maximize resource allocation and curb environmental impact. In manufacturing, this method can enhance production processes and bolster quality control, ultimately conserving raw materials and energy.
The use of predictive and prescriptive analytics and AI-powered demand sensing (69%) also are being used to improve inventory management and eliminate excess stock. AI-powered demand sensing is a method of using artificial intelligence and machine learning algorithms to analyze a wide range of data sources and generate real-time insights into demand for a particular product or service.
By analyzing factors such as historical sales data, weather patterns, social media trends and consumer behavior patterns, AI-powered demand sensing can help consumer goods companies anticipate shifts in demand and adjust their production, inventory and supply chain operations accordingly. This can help companies reduce waste, improve operational efficiency and better meet the needs of their customers.
Embrace Data-Sharing Platforms to Create an Efficient and Waste-Free Supply Chain Able to Quickly Respond to Changes in Demand
With the supply chain accounting for over 90% of greenhouse gas emissions associated with providing a product or service, it's essential to have visibility into the environmental impact of each step of the supply chain. Redesigning Brand Values found that less than 25% of consumer goods leaders have established visibility across the full product lifecycle or end-to-end supply chain, and 40% of executives face siloed operations.
Data-sharing cloud-based platforms are helping companies track emissions, waste, energy usage and other sustainability metrics in real time, providing a comprehensive view of their environmental footprint. These platforms also make it easier for companies to ensure that their suppliers meet criteria for sustainable sourcing, product quality and capacity. By collaborating with other stakeholders within the ecosystem, such as suppliers, manufacturers and customers, businesses can work together to design products that are more sustainable and environmentally friendly, which is key as packaging accounts for 80% of a product's environmental impact.
Cloud-based platforms can facilitate this collaboration by providing a shared space for stakeholders to communicate and exchange information in real time. This can help to accelerate the design process and enable stakeholders to work together more effectively toward a common goal of sustainability throughout the supply chain.
The evidence is clear: CEOs who are integrating sustainability and digital transformation, and have a clearly defined sustainability strategy, are realizing higher revenue growth, achieving up to 41% more than their counterparts. This underscores the importance of integrating sustainability into business operations, which can be done through a robust combination of business process, technology, ecosystem partnerships and C-suite collaboration across manufacturing, technology, operations, supply chain and sustainability. By embracing this holistic approach, consumer industry executives can not only satisfy consumer demands but also drive substantial growth and success in an increasingly competitive market.
Jon Chambers is a partner and supply chain transformation leader at IBM Consulting. With more than 25 years of experience built across food, beauty and healthcare businesses, he works with senior leaders to create value for companies across the consumer industry through visionary and strategic transformation programs.
Luq Niazi is a global managing partner for industries and global consumer industry leader at IBM Consulting, responsible worldwide for industry strategy and client service, business development, solutions and platforms, alliance partnerships, thought leadership and senior talent. Niazi's current business focus is to empower consumer (retail, CPG, agri) clients to transform their products/services, capability and ecosystems through digital technologies including cloud, AI, blockchain, IoT and interactive to deliver new levels of experience, performance and value.
Ruediger Hagedorn is the director for E2E value chains and standards at The Consumer Goods Forum. He is a specialist in operation research, programming and mediation. Since 2009, he has been responsible for executing collaborative value chain projects for The Consumer Goods Forum. Prior to that, Hagedorn gathered experience in startups, medium-sized companies as well as multinational enterprises like L'Oréal and Roche Diagnostics.