WASHINGTON -- Convenience-store retailers unable to electronically connect with their suppliers may find their frustrations spelled out in a recent study, suggesting that similarly, many vendors need to spend more on technology or are not cost effective with what they are spending.
Consumer packaged goods (CPG) companies vary widely in how much they spend on information technology (IT), according to a recently released report from the Washington-based Grocery Manufacturers Association (GMA) and the Chicago-based Boston Consulting Group (BCG). The report also revealed different patterns and strategic choices that distinguish the IT-spending approaches of CPG companies and delved into the adoption of software as a service (SaaS) and “agile” methodologies.
“We were surprised by how few IT innovation practices are being used by CPG companies,” said Ashwin Bhave, a BCG partner and co-author of the report. “There are a number of low-cost, no-regret moves that can be made by [CPGs] to stay ahead of the curve and create enormous value for the business.”
For retailers, a big challenge is making communication between the supplier and retailer fully electronic, according to Jay Dempsey, retailer chair of the eB2B retail merchandising group for technology standards firm Conexxus, Alexandria, Va., “When that’s not the case, there are errors,” he told CSP Daily News. “The cost issues become overwhelming when we have to continually clean up mistakes.”
The benchmarking survey, Navigating the New World of IT in Consumer Packaged Goods: GMA Information Technology Benchmarking 2015, shows that 41% of CPG companies surveyed were “suboptimal operators,” with high IT operating expenses and low levels of innovation. According to the study, chief information officers (CIOs) in this position need to pursue a two-pronged strategy: first, systematically review all IT costs to reduce core spending; second, collaborate with executive management to develop a pragmatic innovation agenda.
Further findings show that SaaS solutions, or cloud-based alternatives, are rapidly replacing PC-based software installations at many CPG companies—with an increase of up to 28 percentage points in the share of SaaS since 2013.
However, the CPGs have been slow to adopt agile methodologies, which refer to continually evolving software products that receive ongoing evaluation, user input and development. Just two in 10 participating companies use the agile method in more than 30% of their IT projects, the study revealed.
The benchmarking survey also identified best practices of IT innovation leaders. These included:
- Funding a wide variety of technology-enabled business capabilities. IT innovation leaders run broadly scoped IT budgets, investing in technology-enabled business capabilities such as consumer websites and mobile apps, e-commerce technology and content management, SaaS solutions and analytics.
- Experimenting with cutting-edge technologies. IT innovation leaders experiment with a wide variety of new technologies such as responsive web design, non-relational databases and micro-services.
- Embedding technology solutions across the entire business. IT innovation leaders invest across the full spectrum of business processes, such as supply chain, finance, marketing, information management and manufacturing.
“The challenges for CIOs trying to manage IT costs while driving innovation are intensifying,” said Jim Flannery, senior executive vice president of operations and industry collaboration at GMA. “The CIO has the best vantage point from which to evaluate broad corporate needs in light of industry disruption and formulate a future-focused technology strategy. This study will provide a useful starting place for that work.”
To download a copy of this report, click here. For the full interview with Jay Dempsey, look to the February issue of CSP magazine.
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