Rather, it's in supplying the world's largest company with varying products depending on the profile of a particular store.
"Wal-Mart doesn't want its vendors to view [the retailer] simply as one customer," explains Alex Huang, who until May was COO of Thermos USA in Rolling Meadows, Ill. Instead, he says, Wal-Mart categorizes its stores by "traits," which vary by seasonality, regional demographics and other factors. Typical traits among the more than 200 that Huang estimates Wal-Mart has include "Back to School" or "NASCAR."
"Based on a [Wal-Mart store's] current trait, we develop products and make suggestions on how to fill the shelves with our products," he says.
Consumer Packaged Goods Sector Digs In to Transaction Data
As you rip into that new bag of "lite" potato chips, do you feel like part of a revolution?
Probably not. More likely you had a twinge of guilt about succumbing to a snack-attack instead of a nice healthy apple.
But the consumer packaged goods industry finds you fascinating, because you have just shone a light on a consumer buying pattern. You have also just handed over a valuable bit of transactional data -- something they crave even more than you do those salty chips.
The collection of transaction data may not seem exciting. But if you're a CPG manufacturer, there's nothing short of a revolution going on, and data is what it's all about.
"As soon as you see customers buying 'lite' potato chips, don't just look at stocking more 'lite' potato chips," says the CIO of one CPG company. "Examine your entire product line. Maybe [it's time to] develop 'lite' cookies, 'lite' crackers, etc., in advance of market consumption."
At a recent meeting of the Retail Industry Leaders Association's Technology Leaders Council, CPG company IT executives testified to the extraordinary value of knowing what sells and where it sells. "It makes a big difference to know that the orange flavor is hanging around, and the lime sells as soon as it hits the store," says one CIO. "It used to take a week for us to know that. Now we can adjust the shelf displays immediately."
Today, many manufacturers look more like global sourcing agents. Many readily identifiable national brands like athletic shoes are owned by companies that don't actually make them, but contract out to factories across the globe to produce those goods to exact specifications. The "manufacturer" has become a designer, a distributor, a marketer and a lifestyle proponent. Its ability to communicate effectively with partners is absolutely essential to the business.
The movement of data within CPG companies and throughout their supply chains is thus the key to blazing corporate growth. Successful retailers send transaction data to manufacturers, and manufacturers send sales data back to retailers.
The result is a bright light shone on consumer buying patterns and on ways to grow the business. Manufacturers can meet consumer needs before even the consumer is aware of them.
CPG firms are staring at another potential torrent of data -- that proffered by the usage of radio frequency identification. RFID promises to provide unprecedented visibility into the supply chain. Case shipments tagged with RFID chips can be found and moved to the right location quickly. But information about those thousands of shipments could clog data warehouses, flooding data pipelines with low-impact, high-volume junk.
Airing Their Dirty Laundry
Transactional data must be relevant, correct and useful. To that end, retailers and manufacturers are working in a number of forums to ensure that data definitions match. This isn't as simple as it sounds, given that their own houses are rarely in order. But the work can reap huge benefits.
Wal-Mart's RetaiLink is the most famous example of a structured data exchange between a retailer and its suppliers. Buy "lite" chips at a Wal-Mart store, and manufacturers will know that you and your friends are shunning the greasy fried ones. Both Wal-Mart and its suppliers are working from common definitions of products, unit sizes and prices—a model many companies are beginning to follow.
It's a brave new world for CPG, as companies move beyond a focus on just squeezing more costs out of the supply chain. Retailers and manufacturers must redirect their attention to the consumer, and using accurate transaction data is emerging as the best guide along the way.
Cathy Hotka, a former CIO, is principal of Cathy Hotka Associates, a retail consultancy. Write to her at InsiderView@ciodecisions.com.
It's a daunting task. And just one of many facing consumer packaged goods (CPG) firms in an era of specialization and micromarkets, where one size most decidedly no longer fits all.
Increasingly in this land of shampoo and granola bars, coffee mugs and duct tape, that pressure to innovate, once the province of marketing and product-development gurus, is now intimately linked to IT and a CPG company's supply-chain capabilities. In a survey last summer of 166 IT executives at CPG firms, 71% of them with revenue of less than $1 billion, the top ranking area for application investment was speeding time to market for new products (see "The Investment Agenda").
"What used to be the mass market is no more," says Stan Elbaum, an analyst at research firm Aberdeen Group in Boston. "Instead, we have shares of micromarkets." For example, Quaker Oats recently introduced varieties of its cereals aimed at various health-related market segments, such as adults with high blood pressure.
"Continuing to develop innovative products is our No. 1 pressure," says Gene Obrock, vice president of operations at $189 million Henkel Consumer Adhesives Inc., the maker of the Duck Tape brand of duct tape. "But you need to know how to make them cost effectively, and what other products you can shift resources from."
This was first published in June 2005