Product Lifecycle Management Becomes Critical for CPG

Globalization of the food, beverage, and other consumer packaged goods (CPG) industries is increasingly accompanied by rapid change and greater complexity.

With this comes the need for product portfolio optimization, more product innovation, increased speed-to-market, margin expansion and improved customer service. At the same time, manufacturers find themselves caught in the middle of slow growth, rising costs, waning pricing power, accelerated regulatory and customer requirements, and a growing percentage of sales from a limited number of powerful and demanding retailers. Effective product lifecycle management (PLM) software, often thought of as a product development tool, is becoming critical to future success and survival in this environment.

Industry response to date has been to rationalize and optimize product portfolios, reduce manufacturing and supply chain costs, develop a more flexible, demand-driven manufacturing infrastructure, and grow the bottom and top line to maintain shareholder value. Industry leaders are aggressively seeking new markets and channels for current and new products. Some portfolio optimization will continue to be achieved through mergers, acquisitions and divestitures; however, most future margin growth will be achieved through innovation and speed-to-market.

Stable margins out

The traditional view of the product lifecycle curve is changing. Profitable, high-volume, mature name-brand products with “stable” margins and little opportunity for growth are being considered for divestiture in favor of new innovative products that can provide continued margin enhancement throughout the maturity cycle of the product. In such a complex and competitive environment, more effective PLM solutions are a critical business requirement.

PLM is a rapidly emerging territory for the food & beverage and CPG industries. While these industries share some common PLM domains with discrete manufacturing, such as product design, many functional areas such as formulation and recipe management, and packaging design, fall outside of the traditional PLM solution set for the design/build world of discrete manufacturing. PLM for CPG is usually comprised of several interrelated functions, including formulation and packaging, sourcing for direct materials, manufacturing process management, quality and regulatory management, distribution, and retail/customer relationship management.

PLM for the hybrid industries can be assembled from various software programs, rather than purchased outright as a single commercial off-the-shelf product. Once assembled, a well-designed PLM system will manage product specifications and recipes, provide production histories, create complete product genealogies and track total product quality. The real value of PLM for the CPG sector is realized in the ability to place product data and manufacturing systems in the context of the product lifecycle.

CPG manufacturers are concerned about the supply chain, packaging and retailer issues. It is not uncommon for them to focus on design for supply-chain business initiatives, when the product team could, for example, concentrate on maximizing the number of units that can be shipped on one pallet. Conversely, they want to insure that their consumers’ product experience is at a level that minimizes returns. Ultimately, they are looking for PLM solutions that allow them to carry out these initiatives while streamlining the process.

Manufacturers should take advantage of the expanding functionality of PLM solutions that provide substantial business benefits, and should develop an enterprise-wide strategy that involves multiple PLM applications across all product lifecycle domains.

John Blanchard, jblanchard@arcweb.com, is a principal analyst, and Dick Slansky, dslansky@arcweb.com, is a

senior analyst at ARC Advisory Group, in Dedham, Mass.

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