EPM Reclaims Lost Profits

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Back to the Future: Forward EPM Reclaims Lost Profits

In the information age consumer goods and retail need to catch up in technology,and management strategies, harnessing the power of data management, in order to truly cross into the 21st century. EPM is a solid step in that direction.

Brian Queenin | Xtropian

am Walton, founder of Wal-Mart, once said: the data management world is software that is S“There is only one boss – the customer. The cus- designed specifically to sift through mountains of data tomer can fire everybody in the company, from the and provide instant, online, accurate and actionable chairman on down, simply by spending his money data that can spell the difference between lines of black somewhere else.” It’s no secret that the success of any or red ink. That’s what decision makers really need – business depends on performance. In fact, a company the capability of organizing and analyzing financial, will exist only as long as its customers are satisfied with operational and external information to enable them to its performance. understand and act before their competitors do and to Walton, like most visionaries, knew that the key to create a competitive advantage yielding sustainable great performance was information, although the nature shareholder value. and environment in which businesses gather and Companies consider the management of such process information has changed significantly since information critical and challenging. Forrester Research

The management of critical information in the consumer packaged goods (cpg) industry, where information is as much a commodity as cereal or soap, is particularly challenging.

Walton’s time. He did not live to witness it, but we are has reported, based on a survey of 40 financial and more sensitive to change now because of the speed at operational managers at Fortune 500 U.S. and which we receive information. In 1805 it took six weeks for European firms, that 63 percent of C-level executives the news of British Admiral Nelson’s victory at the Battle are unable to make the right strategic decisions of Trafalgar to reach New York. Today, in the “information because of poor visibility into internal operational data. age,” any news in some remote place in the world is The management of critical information in the con- flashed across the globe in a matter of seconds. sumer packaged goods (CPG) industry, where informa- But speed alone isn’t enough. To capture the right tion is as much a commodity as cereal or soap, and data and take action with the right corporate informa- where consumer preferences shift rapidly, is particularly tion, companies need information-gathering tools that challenging. More and more, CPG companies are rely- are specifically designed to provide management and ing on enterprise performance management (EPM) its workforce with the most relevant and timely informa- strategies, coupled with business intelligence (BI) tools, to tion. They can then use it to squeeze every last drop of help them grapple with global outsourcing, redefine the performance and productivity necessary to thrive and supply chain, master new manufacturing processes and win in a competitive global economy. The Holy Grail in prime the marketing pump. In doing so they’re reaching Back to the Future: EPM Reclaims Lost Profits

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Figure 1: Performance Management Pentagon

the highest goals of information management – improved a performance management initiative. This allows the productivity, decreased costs, avoided risks and the rein- development of relevant strategies for today’s business forcement and definition, of their brands with consumers. environment and provides the foundation for modification as the organization becomes more mature in its EPM Defined EPM capabilities. By using the performance manage- So what is enterprise performance management? ment pentagon organizations can quickly assess where Enterprise performance management encompasses the they currently stand in their maturity in the deployment processes and capabilities required to manage business of EPM (see Figure 1). performance across the entire business. EPM includes EPM especially allows for the use of performance the identification and definition of strategies that will measurement to effect positive change in organization enhance performance both today and into the future, the culture, systems and processes. How so? By helping understanding of key business drivers that actually move management set agreed-upon performance goals, allo- the business, how those strategies and drivers are opera- cate and prioritize resources, inform managers to either tionalized and how strategy execution is tracked from a confirm or change current policy or program directions forecasting, reporting and analytical perspective across to meet those goals. Allowing management the oppor- financial and operational dimensions into the next plan- tunity to test the strategies, monitoring performance in ning cycle. It is critical to understand the starting point of faster cycles than before is vital for EPM success. Not Consumer Goods & Retail Report

allowing the strategy to sit on the shelf for a year, but administrative expenses have been inching upward to Forward rather allowing review and modification in faster and about 5 percent annually. Economic pressures have not faster cycles provides for adaptive change and market helped the consumer goods industry along its path to responsiveness. Perhaps more importantly, EPM helps increased profitability. Commodity prices have sky- managers share performance results in pursuing those rocketed since 2000, increasing the price of foodstuffs, goals – with the knowledge-holders in the best position chemicals, packaging and energy. With oil prices hov- to use that data to reach those performance goals. ering around $60 a barrel, simply delivering those EPM is a set of an intensely strategic data-driven goods has grown significantly more costly. It was only and statistically oriented processes, software tools a few years ago that a consumer goods firm could and internal processes that more and more companies pass along higher costs to its customers. Not anymore. are taking a hard look at in an effort to improve overall With the growth of mega-retail chains such as Best operational effectiveness from strategy to execution. Buy, Costco and Wal-Mart, much of the industry’s pric- AMR Research estimates the performance manage- ing power has dissipated. Squeezed by cheaper options ment market to grow over 6 percent through 2008. both at home and abroad, U.S. consumer goods com- Proving to be more of a necessity than a luxury, EPM panies are starting to realize that they must capture crit- adoption is expected to steadily increase over the next ical business and consumer data and use it to provide several years as the pressure for organizations to become superior products, stronger promotions and more more efficient and agile continues to move up on the cor- effective marketing execution with higher profits. porate agenda. Executives get rewarded on “gut feelings Recognizing which customers and consumer profiles and hunches.” Testing those hunches faster than the com- generate the most profits with which products will be petition yields better business results and a real strategic the key to profitable growth. Unlocking this door is an advantage. Research firm Gartner estimates that fewer absolute must for CPG and retail companies to com- than 10 percent of enterprises had implemented enter- pete in an increasingly brutal market environment. prise performance management by the end of 2002. Enterprise performance management tools help However, 40 percent plan to adopt it by the end of 2005. consumer goods companies by giving decision makers a real-time view of performance metrics as the busi- CPG Embraces ness is running, providing managers with the insights Performance Management they need to monitor and take corrective action in the The consumer packaged goods industry is harnessing marketplace. There is a difference, reflected in bottom- EPM just as trend indicators point to a seismic shift in line results, between “running” and effectively “manag- the consumer goods industry’s market dynamics showing” the business. ing significant profit pressures on industry companies. For example, ready-to-use and customized reports Trends like discount retailing and the rise of private- that leverage critical retailer data – including radio fre- label products are placing enormous strain on the price quency identification (RFID) and point-of-sale feeds on of branded consumer products. Increased global com- inventory and pricing information – arm managers with petition has fueled a tougher economic trend where the information necessary to effectively execute both each new brand costs more to develop and market, internally and externally with their retail partners. Being but has a shorter life cycle and thus brings less returns totally aligned and integrated with the entire business over time. The increasing cost of raw materials, espe- ecosystem is a requirement in business today. This is cially petrochemicals for containers, packaging and increasingly more important at a time when companies production, continues to place pressure on margins. are moving toward the real-time enterprise. This is Barbara Hulit, a consumer goods analyst at the especially true in the consumer goods industry, which Boston Consulting Group, warns that the consumer is striving to become increasingly demand-driven. goods industry has faced softer sales, rising costs and Recognizing the profit potential of performance sluggish pricing power. Over the past five years, she management, many consumer goods companies have estimates that the sales of the consumer goods compa- taken the technology to heart and used it to great bene- nies included in the S&P 500 index of large American fit. Understanding, then managing to the levers and companies have grown at a compound annual rate of metrics that matter in the business, is a quantum leap just 4.7 percent. In contrast, industry sales, general and forward. Conventional balance sheet levers capture Forward holistic approach to performance metricsisembraced. toholistic performance approach to onreturningvalue focused The CFO agendaisoften metricspotentiallyamount ofmeaningful unmonitored. alone measures Managing to leaves these alarge value. ofthecompany approximately 25percent their specific needs, and away needs, acommon data to use their specific f s astandardized time. managers EPMin real these gives mation to to actonaccurate enable data CPG executives grated financial,operational infor- strategic, andexternal fr a have attheirdisposal now companies sumer goods go analysis anddissemination. corporate for informationneed better dissection, creation, s viaenterprise Technology shifts seat. into thedriver’s management right window rearview from organization inoptics an moves management.Thisshift proactive is information for ofSarbanes-Oxley” thefuture“son costly andsimply reactionary.Gathering thecorrect isineffective, requirements to legislated Just responding c asacatalyst obstacles doing business.Viewing these for pe com- global suchmarket asSarbanes-Oxley obstacles, array to agrowing of point observers Industry turers. manufac- for greater consumerproducts been has never businessintelligence forneed coupled withEPM better t andmarket posi- measurable ontheirprofitability impact a thatarehelpingthemshow ance managementtools perform- enterprise integrated generationnew ofrobust, S Changing Dynamics Back to the Future: EPM Reclaims Lost Profits Lost Reclaims EPM Back to theFuture: ormance management applications requiredtoormance managementapplications meet ion. In doing so, theirtimingion. Indoingso, couldhardly bebetter. The et of reporting andanalysiset ofreporting arich tools, menuofper- have including theInternet, allystems, fueled agreater hange isabestpractice management. inperformance ome consumer goods companies arecapitalizingona companies ome consumergoods amework of capabilities geared to produce tightly to produce geared inte- amework ofcapabilities

shareholders. Itiscritical to shareholdervalue thata shareholders. ti o t EPM instrumentalinhelpingconsumer isproving ds companies cope with these challenges. withthese cope ds companies Con- ion and outsourcing complexities as impediments to complexities asimpediments ion andoutsourcing common datainfrastructure. needed to of performancemanagementapplications of reportingandanalysistools,arichmenu epm givesthesemanagersastandardizedset meet theirspecificneeds,anda able goals all theway to down withaction- canbecreated strategies infrastructure. Now rearview mirrorareathingofthepast. rearview e withactionable is workers steps ance issuesandprovide to quicklyData needed andaccurately analyze perform- inplaceto monitor performance. urement processes pa suita make, lineto such better aschanging aproduct to needed thatCPG executives the kindsofdecisions mation was notalways oreasily upto accessible date for data and information. ofcompany house Butthatinfor- store- large have kind ofdatawarehouse some –avery companies consumer goods –thefinishline.Most cross only recently, –butnot would dataminingtools approach Until performance. company when itcameto measuring hadtheirhandstied companies tools, ness performance busi- ofenterprisewide theemergence whelming. Until over- –hasbeen in size inscope andunmanageable isthattheinformation at hand.Theproblem –massive information moretheissue data to hasbeen meaningful hardly denied accurate been accessto data.Converting pe p com- have tools, keptance measuring consumergoods to are madewithless reliable information thandesiredwhile before. thanever decisions These decisions meaningful to make andmore faster environment requiresexecutives Today’s business andobjectives. the manager’sneeds w orinpatch- itlate ance managementdata,would receive critical perform- whodidreceive the corporate pipeline, andanalyzingand notenoughinvetting up it.Managers to Ifthedatadidreachrightarea, decision. an effective could notalways to itto make distribute therightpeople asily available. With EPM, thedaysofmanagingvia anies from reaching theirbusinessintelligence reaching anies from and ork form, withdatamissingorthatwas irrelevant to o much time was spent reconciling andformattingo much data, time was reconciling spent gether with a scarcity of acceptable software perform- ofacceptable software gether withascarcity rf rt Te Y ormance management objectives. Companies have Companies ormance managementobjectives. icular demographic where sales hadsuffered. icular demographic wheresales es, datawarehouse couldgatherkey data,but tools c hnology limitations, data availability andintegrity, limitations, dataavailability hnology

the lineworker,meas- with Forward ■ onsumer Goodsonsumer & Retail Report gins are always under pressure. Using the Using under pressure. gins are always C onsequently, consumer goods consumer company decision onsequently, ok ahead. In the near term, they identify can easily ormance management pentagon as an assessment ep Them Coming Back ep Them Coming C rf lo ol provides that valuable firstol provides that valuable step.

bjectives, knowledge of what really drivesbjectives, the business knowledge of what really en business strategies. Managers capital can make omers more. coming back for ion that reaches across the the enterprise extract to trends, key driverstrends, key and other factors that influence cho- s decisions business plans that are develop to allocation aligned with their strategies. term, Longer a actually robust capability EPM delivers even more, placing decision makers front strategy and center corporate as key resources along. been – where they all should have makers are beginning see to enterprise performance management as a trustworthy means deliver to the implementa- need. An EPM they actually information t consumer goods managersinformation require cannot stronger sales to lead and increased workforce only productivity, it also can do the job that the Sam Waltons most consider importantof the world cus- your – keep t Brian Queenin is managing partner and CEO of Xtropian, a firm specializing in enterprise performance management, business intelligence and strategic planning. He was a partner at Accenture in the EPM practice and the vice president and global leader of business intelligence at Capgemini. He serves on the board of advisors for several technology organizations and is a founding partner in The Center for Thought Leadership and Amodus. Contact him at [email protected]. pe to Ke consumer goods industry allows EPM decision makers to areas are more important than ever in business, espe- on the hard battlefield products of consumer cially where mar management makes the business focus more clear. the business focus makes management of the strengthsIdentification and weaknessesare the first improvement as a business. step in moving overall to The resultsa better-run are and aligned goals operation, o and moves the performance increased needle, return to the shareholders These and improved cash flow. subject EPM EPM EPM helps EPM EPM provides a EPM managers can make capital allocation decisions managers can make plans that are actually to develop business strategies. aligned with their EPM improves compa- EPM EPM tools allow firms to gain firms to tools allow EPM ise capture internal to synergies and manage age IT to streamline operations, allocating streamline to operations, age IT rt r erational excellence: erational ion that fosters through innovation investment adership management: and talent sition helps to redefine the brand in the eyes of helps brand redefine the sition to liance and collaboration capabilities: liance and collaboration t pe ustomer focus: ustomer ve or the executive understand. to strate- Corporate eturn on shareholder value: amework to create to amework processes the that monitor ywide productivity excellence and functional f

ormance management become significantly more ormance management become significantly right business metrics to driveright business metrics to share- return to total holders impact and positively share price. ensures that a performance-oriented is culture established and nurtured through leadership and management. talent R fr consumer goods companies create agile an organiza and execution in the future. Le Al strategic alliances. Innovation and execution to value: value: and executionInnovation to consumer goodsenables companies develop to ex insight into their customers’ needs and clearly artic- their customers’insight into needs and clearly ulate proposition. a differentiated This pro- value po the consumer. Op C through process It helps innovation. managers le n resources in the areas and value. of highest skill That’s where enterprise performance management rf sy bvious, enabling consumer goods companies excel to Knowing begin where to the process performance for management is a necessary first step. A plan, a map and a known starting point components are key this for The ability understandbusiness journey. to and quantify the current capabilities in the spectrum of performance ■ ■ ■ ■ ■ ■ carrying important a larger financial risk. It is increasingly and provided being timely is accurate, that the information ea in the following areas: in the following o gies, market advantagegies, market and profits depend on it. its At ground level, the benefits pulls weight. of really pe

Tools and Technologies

10 Rethinking the Solutions A climate change is coming. Here’s what you need to know about performance management and how it will drive your IT choices.

14 Simplicity and Profitability Software that focuses on business performance management can level the playing chapter 1 field and provide tighter inventory control for consumer goods companies.

18 Adopting the Right Processes The next frontier in company efficiency is deploying systems born of philosophy and managerial insight as well as software.

20 Case Studies: Leveraging BPM These companies have improved their bottom line or are raising their targets by streamlining their processes and using business performance management.

23 The RFID Challenge Radio frequency identification tags will deeply change the CPG and retail industry. Being ready to vastly adjust your product codes may make or break you.

Management Strategies

26 How to Act on Data Analysis You wouldn’t think of scrutinizing your data in a vacuum. You’ve got to know what it means on the micro and macro level and examine it often to make the right decisions. Consumer 30 The New CIO Goods & Retail chapter 2 No longer just a programmer with more pay, the CIO of the future must be Report a planner and a business manager who just happens to know IT.

32 New Products Come From the Leadership Remember the Newton? So do a lot of other CEOs who are trying to be innovative without breaking the bank.

36 Category Management At a Crossroads As shopping habits change and big retailers keep their data to themselves, fact- based selling must enter the 21st century as well.

38 Compliance Limits Can Free Your Company Amid the tension, headache and expense of Sarbanes-Oxley is a scheme for making the entire enterprise better.

CEO Nick Smith Manufacturing Publisher Richard Jenkins

Project Manager Trent Mason 42 A Supply Chain Without a Weak Link Account Managers Scott Handyside, Amanda Inventory replenishment driven by actual demand can be the ultimate way to Malitsky, Robert Morris, Samantha Norris cut costs, streamline manufacturing and stay ahead of competition. Distribution Manager John Malick chapter 3 46 A Checklist for Maintaining Quality Control

Editor Eric Reyes With software and outsourcing so available, it may be better to keep your quality

Publications Director Melissa Mumbauer control close to the vest.

Art Director Tamara Dyer 48 Don’t Discount People Assets Production Manager Christian Muncy If you find it difficult managing your employees, your employees find it difficult managing your company.

52 To Dashboard or Not to Dashboard? The question is not whether you should use dashboarding software to track production, but whether you know what to do with the information.

54 Out With the Sold, in With the New Keeping your inventory lean but available is a subtle and misunderstood art these days that involves altering the way you think about your stock. Marketing

58 How to Build a Brand Knowing how to define your brand and what it adds to your company’s value will help you use that brand’s maximum earning power.

62 Measuring Brand Value Part two of how to build a brand: Your brand may be an intangible, but it can add hard numbers to your company financials.

66 Getting the Word Out Cutting through the clutter has never been harder. Here are some alternative advertising vehicles that are revving up for prime time. chapter 4 69 The Game’s the Thing The old idea of product placement in entertainment is getting a new spin by delivering energetic advertising into online gaming, and reaching a very desirable demographic.

71 Blog This Brand Blogs are now so popular that it might be time your brands had blogs. Here’s a checklist for getting started.

Satisfying Customers

74 Toward a Proactive CRM Enable your customers to do more business with you by anticipating their purchase process or “journey.”

78 Using Proactive CRM to Unlock Incremental Revenue Consumer Scale comes from using nontraditional media to build personalized relationships. Goods & Retail 80 Customers Aren’t Always King Report When your consumers don’t exactly buy the store, are you still treating them as if they are? chapter 5 84 Understanding the Ethnic Consumer Global strategy begins at home. The ethnic make-up of U.S. consumers is expanding, mixing and ready to spend. Are you ready to get their attention?

86 Survey or Science? Getting the right read on your loyal customer base allows better cross-sell and more timely reaction to shifts in customer behavior. To advertise, subscribe or obtain reprints, call 415.397.2400

Consumer Goods & Retail Report is published by Montgomery Media International LLC a Montgomery Research, Inc. company The 21st Century 300 Montgomery St., Suite 1135 San Francisco, CA 94104 90 A Remedy for Pain in the Chain Montgomery Research, Inc. Chairman and CEO Chris Trayhorn Using technology and process optimization can lead to a better supply chain – Director of Business Operations Kim Massey and with just the right inventory. Marketing Director Yvonne Schellerup

94 The Hitchhiker’s Guide to the B-to-B Galaxy IT Manager Irene Graff Global trading partners need a network in order to communicate and to all Controller Julienne Riveong

speak the same language. It is on its way. While every effort has been made to ensure the accuracy of the content of this publication, the publisher will accept no responsibility for any errors or omissions, or for any loss or 96 Using the Power of Three damage, consequential or otherwise, suffered as a result of any material published here. The information published in The Razor-thin margins and value erosion don’t intimidate the partners who make Collaborative Enterprise Report is not intended as a substitute for legal, accounting, tax or other professional advice. The pub- up CP-Connect, an initiative that may be a model for the future. lisher assumes no responsibility for statements made by adver- chapter 6 tisers in business competition. All editorial submissions, whether solicited or unsolicited, become the property of 100 The Shopping Cart Future Montgomery Media. Statements and opinions expressed here- in are not necessarily those of The Collaborative Enterprise The shopping experience will likely include more customer personalization Report, Montgomery Media, its advertisers or any other agent. The name “Collaborative Enterprise Report” is the intellectu- and some powerful technology under the hood. al property of Montgomery Media. The entire content of this publication is protected by copyright; full details are available through the publisher. All rights reserved. These trademarks or 102 The CEO of the Future copyright materials may not be used in any media for any purpose without the express written consent of Montgomery Media. Even with great technology at your fingertips, executives always need to be © Montgomery Media 2005 thinking of next steps. ISBN 1-932178-18x Chapter 1

dopting the Right Processes the Right dopting ethinking the Solutions implicity and Profitability Radio frequency identification tags will deeply change the CPG and retail industry. Being ready to vastly adjust your product codes may make or break you. The next frontier in company efficiency is deploying systems born of philosophy and managerial insight as well as software. These companies have improved their bottom line or are raising their targets by streamlining their processes and using business performance management. A climate change is coming. Here’s what you need to know about performance A climate change is coming. Here’s what you need management and how it will drive your IT choices. can level the playing Software that focuses on business performance management field and provide tighter inventory control for consumer goods companies. A Case Leveraging BPM Studies: The RFID Challenge R S

ols and Technologies ols and n the world of consumer goodsn the world and retail there are always new new products, management strategiesand always new technologiesmerchandise help you get your to always help tighten up your supply chain. Business performance chain. supply up your help tighten the shelves. As the best in technology utilizes your company the shelves. 23 18 20 14 10 adio frequency tags identification, are now mature enough

to tools at your disposal.there are some remarkable RFID, or r to management and adjunct software reached have programs Some companies but a fact. a fad – no longer their prime time are showing real profit and real by using these innovation advanced approaches. I To Rethinking the Solutions

A climate change is coming. Here’s what you need to know about performance management and how it will drive your IT choices.

tools & technologies Colin Snow | Ventana Research

n today’s business and economic climate, the ability to Challenges for CG Companies Iimprove business performance rapidly has become Performance management practices are well-suited to critical. As customer brand loyalty shrinks and profit address the top business challenges facing CG compa- margins narrow, consumer goods (CG) companies are nies. These methodologies are cross-functional in nature demanding that their information technology infrastruc- and will help finance, operations and IT organizations tures support faster, more effective decision making. focus their resources and investments effectively. They In response, we’re seeing the increasing adoption of address six key categories all companies must succeed strategies, methodologies and best practices around per- in to remain competitive. formance management. This movement is helping the Compliance Management. Regulatory compliance top companies deploy IT investments toward their most requirements force organizations to find better methods to critical business challenges. assess their policies and processes in areas ranging from Simply put, performance management is the method- finance to operations. Successful compliance manage- ology and process that aligns business and technology ment requires efficient links between people, processes

Performance management can create an adaptive 10 organization whose culture and business methods are unified.

to improve results. Performance management focuses and information systems. Compliance assessment sys- business effectiveness by linking business processes and tems automate manual reviews and analysis and take a technology tools at any level of the organization; doing so proactive approach to monitoring business. improves the flow of information, encourages collaboration Profitability Management. The push to manage and thus shortens cycles of decision making and action. costs and optimize revenue streams is sharpening the At its best, performance management can create an focus on enterprise profitability. One effect of this effort adaptive organization whose culture and business methods is the growing influence of finance beyond the budget- are unified. This unity is more important than most business ing process, which imposes a new rigor throughout executives realize, since established management and orga- the organization. To deliver that rigor, a foundation of nizational politics can fracture a company’s overall ability to business intelligence and business performance man- drive toward common purposes. Enlightened organizations agement (BPM) is needed to support applications and correct this dysfunction by adopting metrics-driven perform- systems that manage profitability. ance management software solutions. Applied well, they Process Improvement. Organizations often need to help to make the culture more transparent, so that informa- improve their existing operational processes before intro- tion flows bidirectionally and performance drives it. ducing new systems. Most organizations and IT suppliers

Colin Snow is vice president and research director, operational performance management, of Ventana Research. He has 10 years of enterprise software experience from vendors such as PeopleSoft and Steelwedge, as well as over 15 years of industry experience in manufacturing, planning and services from firms like Olympus America and CIDCO Corp. He earned his B.A. from Evangel University and his M.B.A. from Florida Atlantic University. Consumer Goods & Retail Report tools & technologies have failed to take this easier path to process improvement. First Principles Measuring, monitoring and improving processes admittedly Before you begin to evaluate any performance manage- is not easy, but it is essential for performance management. ment technology, three steps are critical. First, develop Cost Management. Reducing costs to meet corporate a performance plan that describes how your financial and financial requirements should be part of standard and operational processes contribute to strategic goals. operational processes. To meet cost management objec- Second, determine the key analytics that you will use to tives, the business side must improve the efficiency of its measure all performance improvement projects. Third, operational processes, and IT must continue to consolidate prioritize your improvement projects so they align with its portfolio and vendors. Getting optimal use out of existing your strategic goals. investments in ERP and SCM systems and converting data Detailing the performance management objectives into timely and contextually relevant information are critical for BPM involves identifying the analytics you will use aspects of performance management. to measure performance and compliance improvement Performance Improvement. More often than not, projects. Whether the focus is customer profiling, sup- management has not integrated the performance man- plier performance, food traceability or radio frequency agement process into the company’s daily operations. Yet identification, these metrics provide the basis for an refining processes to make operations more efficient and ongoing cycle of measurement, evaluation and improve- effective requires close alignment of information and sys- ment. (By the way, it is critical that your organization tems. A lack of support for linking strategy, planning and tie these process improvement metrics to high-level execution remains a major barrier to realizing perform- performance improvement goals, not lower-level or ance improvement. transaction-oriented metrics.) Business Innovation. Applying innovative processes Done right, performance management will provide and methods to gain a competitive advantage should be a you with tools to understand why some of your business top priority. One of the most often missed opportunities in processes don’t function well, and how to improve them. organizations today is the failure to focus ideas and knowl- They will provide project teams with data to assess the edge to transform business processes. Creating processes productivity impact of proposed solutions. That data in that apply IT systems to support business innovation should turn should help business and IT units arrive at a com- be part of every organization’s business plan. mon understanding of particular business problems and their solutions. Standard metrics taken before and 11 A New Approach after the process change will help determine the degree Gearing up to respond to these challenges has led organi- of success of the resulting change initiative. zations to shift from transaction-centric to information- Any performance management solution starts with centric approaches that use collaboration to drive BPM. A truly effective performance management solution actionable decisions. This new approach has opened the that delivers a significant ROI does not make only a single door for a family of performance management solutions organizational change or implement a single technol- that have evolved from business intelligence and decision ogy. Rather, from a well-planned integration of people, support tools. These solutions help organizations manage processes and tools, it gives managers the knowledge performance in a methodical and coordinated manner. they need to target the improvement opportunities that The top layer of that solution landscape is business per- will yield the greatest business impact most rapidly. ■ formance management. BPM solutions link strategies and goals to rolling forecasts, budgets and plans. They also continuously measure and monitor the activity of the busi- Are You Ready for BPM? ness and provide predictive data to operating managers. ■ The benefits of a BPM approach are many. It creates a How do your financial and operational processes add to your strategic goals? central data repository rather than forcing managers to ■ What are your key analytics used to measure rely on a multitude of disparate spreadsheets. It can company improvement projects? ■ reduce the long cycle times of budget development and How are those projects and strategic goals aligned? evaluation by providing version control, approval routing and workflow. Best of all, it delivers real-time access to strategic plans, operational forecasts, actual results and a common set of key performance indicators, which facilitate operational performance management. PLM for Consumer Packaged Goods Companies – Digitally UGS Corp. is a leading global provider of product life cycle management (PLM) software and Transforming the services with nearly 4 million licensed seats and 46,000 customers worldwide. Headquartered in

Solution Provider Plano, Texas, UGS’ vision is to enable a world Process of Innovation where organizations and their partners collaborate through global innovation networks to deliver world-class products and services while hese days it is organic growth that matters to your leveraging UGS’ open enterprise solutions, ful- filling the mission of enabling them to transform shareholders and potential shareholders. While often T their process of innovation. appreciating an acquisition, investors will always reward Anthony J. “Tony” Affuso, Chairman, organic growth. If you want to drive this kind of growth you CEO and President

must turn to the innovation process. That is, the process Chuck Grindstaff, Executive VP of Products

beginning with consumer insight and upstream research, Dave Shirk, Executive VP of Global Marketing

and ending with consumer delight in repeated use. Doug Barnett, Senior VP of Finance and CFO Whether out of disbelief that technology could play 5800 Granite Pkwy. an important role in CPG innovation, or because scalable Plano, TX 75024 technology has been slow to evolve (chicken?/egg?), the Phone 972.987.3000 Fax 972.987.3398 innovation process has been largely overlooked during www.ugs.com the past two decades of nonstop software-based automation. But this is about to change. Business Contact Daniel J. Staresinic ERP manages your transactions. CRM manages your Global Marketing Director, CPG Industry customer knowledge. SCM manages your extended sup- Phone 513.576.2184 [email protected] ply chain. But only PLM (product life cycle management) helps transform your process of innovation. PLM tools have Cost Reduction been performing and maturing for more than 30 years ■ Productivity improvements, especially for high-skill within the discrete manufacturing industries. A range of resources; innovation-bolstering solutions exist to enhance the design, ■ Reduced rework and fewer project restarts; and manufacture and launch of hard goods like phones, appli- ■ Increased reuse of capital, qualified raw materials ances, cars, trains and planes. Today, thanks to leading and product technology. manufacturers who have pioneered PLM in CPG and software vendors like UGS that support them, PLM is ready for Globalization widespread adoption. ■ 24-hour development environment; Below are some of the benefits you can obtain through ■ Global teamwork enablement; and PLM-driven transformation of your innovation process. ■ Increased ability to deal with country-specific product, material and manufacturing requirements. Profitable Growth ■ Deeper consumer insight; PLM represents an endeavor on the order of other major ■ Better conversion of consumer insight into winning systems’ implementations, but it provides the promise of a far products; greater ROI. The prize here is not only a bottom-line cost ■ Improved speed to market with new and improved reduction. It is – and should be approached as – a program products; and to transform your top-line growth engine. ■ Better resource deployment to the most promising UGS is one of the world’s largest and most experienced initiatives. developers of PLM software. Working closely with our customers over the years, we have transformed the process of Mitigation of Risk of Uncontrolled Loss innovation at many of the world’s leading manufacturing ■ Improved regulatory compliance capability; companies … and they would be glad to tell you about it. ■ Improved traceability of claims and key approvals; and Our company’s mantra, as stated by our chairman, is ■ Enhanced intellectual property documentation to secure “Never let a customer fail.” Please contact us so that we and more effectively prove your “right to practice.” can show you how we can help you succeed. ■ Only when everyone shares their vision can you see the best way to bring a product to Powering New Product market. UGS Teamcenter® software lets users share and leverage collective knowledge Development and Introduction (NPDI) across a secure, collaborative environment. It’s an integrated portfolio of proven product Your growth depends upon the lifecycle management (PLM) solutions that connect people and processes, powering successful launch of innovative innovation and productivity by letting you create, capture and share product knowledge new products. Nearly 90% of CPG across your enterprise. Information can be accessed globally, on any kind of web-accessible product ideas never make it to market. Of those that do, almost device, using everyday desktop applications. Teamcenter’s open approach to application 80% fail. Generating great ideas is integration leverages existing IT investments. Its modular, out-of important; executing them effectively box solutions can be sized to any company’s PLM vision today, is critical. Find out how Teamcenter offering a quick return on investment, and the capacity to scale helps you develop and launch the right products, faster and for less. over time. Visit www.ugs.com/go/cpg for more details on how Visit: www.ugs.com/go/cpg Teamcenter can help you power innovation with knowledge. for more information.

Knowledge isn’t knowledge if no one knows about it.

Software that focuses on business performance management can level the playing field and provide tighter inventory control for consumer goods companies.

tools & technologies Jim Brett | Cartesis

ince many consumer goods (CG) firms are quite control, etc.), there are industry-specific challenges Slarge, with multiple lines of business, product fami- that make CG companies prime candidates for deriving lies, brands and highly decentralized operations, each real value from BPM. unit tends to look after its own narrow area of concern. This myopia tends to focus on departmental needs, Having a Plan whether it is product management, manufacturing, A BPM system allows all departments, planning finance or purchasing, fragmenting the planning and units and planners to work with one version of the reporting process. A sophisticated yet simple-to-use data that is continually updated, using customized system is needed to provide insight and linkage between views that uncover the meaning behind the numbers. macro- and customized, unit-level planning functionality. In other words, at any given time, users can gain This is sometimes referred to as the challenge between insight into plans as well as projected and actual prof- bottom-up and top-down planning. itability in multiple dimensions – corporate overall or

a bpm system allows all departments, planning 14 units and planners to work with one version of the data that is continually updated.

Solution scenarios do not include hiring more bodies by product, cost center, customer, stock keeping unit, or more middle management. Solutions do not include country, etc. The planning process therefore becomes late nights crunching numbers until your staff is border- holistic and integrated – with strategic plans, accom- line mutinous. And solutions do not involve adopting a panying narrative, actuals, forecasts and other non- fashionable management philosophy that may fall out financial metrics. Management can easily identify of favor in three to five years. which products, brands or other units are the most CG and retail companies of all sizes can benefit profitable. Additionally, a strong BPM system should greatly from the use of business performance manage- enable scenario modeling on the fly, allowing ment (BPM) software to gain an accurate view of the planners to quickly assess projected profitability company’s performance and to pinpoint areas where by taking into consideration multiple drivers such greater profitability can be achieved. While retail as promotional spending, product pricing and orders companies without a BPM system suffer from the same in the pipeline. budgeting and planning woes as companies in other BPM software targeted to the CG industry includes industries (long cycle times, limited workflow, version tools for price optimization as well as trade funds and pro-

Jim Brett is the manager of sales and marketing operations for Cartesis North America. Prior to joining Cartesis, he worked for Arthur Andersen for 11 years, where he was a regional director of the finance business solutions consulting. Some of his consulting clients included Great Brands of Europe, Microsoft, Monster.com, Ciba Specialty Chemicals and Omnicom. Consumer Goods & Retail Report tools & technologies motions management capabilities. Other common fea- the gap between sales and operations by enabling more tures include dashboards designed specifically for the accurate sales forecasts and therefore more informed industry, predictive analytics for planning and forecasting, purchasing and inventory decisions. Furthermore, since automated alerts and auditing and tracking capabilities many BPM systems have evolved to include users required in today’s compliance landscape. The goal is to enable managers to make decisions that enhance profitability, by providing visibility into current and historical Planning ■ Corporate overall, or by product data and making it possible to forecast more accurately ■ Cost center into the future. ■ Customer ■ It is also essential for CG firms, like all manufacturing Stock keeping unit ■ Country companies, to move as quickly as possible from static plans to rolling forecasts that facilitate interdepartmental Central Data Repository ■ Version control collaboration on plans and budgets. BPM software is key ■ Approval routing in providing the predictive data that helps seed the rolling ■ Workflow capabilities ■ forecast with figures based on these models. This method Real-time linkage to strategic plans ■ Nonfinancial key performance indicators allows businesses to react quickly to changes in the mar- ■ Actuals and forecasts ketplace and fluctuations in business drivers. Price optimization is always a challenge for CG com- Quick Assessment ■ What-if and on-the-fly modeling panies, and is inextricably linked to profitability. Even the smallest changes in pricing can have a huge impact on Figure 1: BPM Touch Points margins and the bottom line. BPM software can help determine whether pricing tactics are in line with compa- beyond finance, all user groups can examine data and ny goals, and also uncover mysteries such as which cus- information from a shared system. tomer segments are the most price-sensitive and how As previously mentioned, CG companies are not well individual product categories are performing at the immune to the more generalized planning and budgeting store or distribution outlet level. inefficiencies that plague all industries. Too many companies are still living in “Excel hell,” passing data back and Healthy Hypotheticals forth using a multitude of disparate and disjointed spread- 15 One of the most consistently vexing tasks for CG compa- sheets. This leads to version-control issues, process bottle- nies is optimally allocating funds for trade promotional necks and ultimately long cycle times that make the spending. Effective management of trade promotions is budget outdated by the time it is finished. Many compa- a constant struggle in this industry. BPM software allows nies rank budgeting as the No. 1 time waster due to the companies to easily run different “what if” scenarios to long cycle times involved and the poor linkage to strategy. predict profitability by different mixes of trade dollars, BPM software provides a central data repository that product mixes and volumes – instantly calculating the incorporates version control, approval routing, workflow impact on the bottom line. In other words, instead of capabilities, and real-time linkage to strategic plans, non- driving blind, managers can see where trade promotions financial key performance indicators (KPIs), actuals and will be most effective and which are most likely to attract forecasts. Of course, a strong BPM system should enable new customers. Sales and marketing can be made integration with Excel to provide users with a familiar front aware of promotional opportunities via personalized end. Furthermore, with a BPM system, users can also alerts that track changes in consumer trends and com- attach supporting narrative to their budgets and plans. It petitive pressures, and then track the effectiveness of can also draw a direct connection between strategic plans those efforts in real time. and budgets and between budgets and KPIs, providing a Another area where BPM software can help is in clear picture of where plans are succeeding and where improving supply chain efficiency. Inventory levels are they might be falling short. still too high at most CG companies. If sales forecasts CG companies simply cannot afford to let competi- are inaccurate – which they are in companies that do tors gain the advantage of supercharging their budgeting not use a rolling forecast – inventory will be skewed, and planning processes. To maintain a level playing field, resulting either in inventory levels that are too high or, companies are well-advised to implement BPM sooner worse, too low. BPM software that integrates plans with rather than later, or the opportunity cost could turn out to rolling forecasts in a single application can help bridge be more than they can afford. ■ Great Performances Start With Confidence

artesis is a global software vendor that provides ■ Management reporting and analysis; and ■ Solution Provider Ctrusted solutions for driving your company’s finan- Comprehensive business performance management. cial and business performance. To make sound business decisions, you need a clear, accurate and timely view of Cartesis has a global client base of over 1300 market- corporate performance: past, present and projected. leading companies. Thirty-three percent of FT Euro 100 Your success depends on having these meaningful companies and one in five of the Fortune Global 100 use insights to act upon because great performances start Cartesis’ BPM solutions with confidence. with confidence. Global customers include AT&T, Aventis, Danone, Diageo, Ernst & Young, Gilbane Building Company, Enter Cartesis Hilton, Nestlé, Nissan, Nomura, Sun Chemical Our powerful technology handles the complex but Corporation and Unilever. essential task of unifying information, people and Through Cartesis’ global partner program, the processes in a single data model that can be applied Company established a strong network of SI and tech- easily and consistently across your company’s business. nology partners including: Ascential, Business Objects, The result is a deeper understanding of where you are, Capgemini, Ernst & Young, IBM, KPMG, Microsoft, what’s working and what needs to change. Whether it Oracle and PricewaterhouseCoopers. be regulatory compliance, resource allocation, capital investment or other strategic initiatives, Cartesis gives The Cartesis Suite you the confidence to make the hard decisions. The ones The Cartesis Suite, Cartesis’ flagship offering, is the that help you compete, adapt and grow. only fully integrated, Web-based solution for business performance management. Cartesis’ unique Integrated Insight. Control. Confidence. Data Model (IDM) supports the key financial manage- Cartesis provides best-of-breed business performance ment activities of planning, budgeting, forecasting, management functionality built on a proven, unified statutory consolidation, management reporting and engine that includes all critical variables for insightful performance management. decision making. From a single solution to a full suite, we offer: Cartesis ES Magnitude ■ Financial consolidation and reporting; Integrates consolidation, reporting and performance ■ Budgeting, forecasting and planning; management in a Web-based solution.

Dashboard, Scorecard and BI Tools

Planning Management Intercompany Shareholding Budgeting & statuory Performance Simulation Tax Forecasting reporting management reconciliation management

IDM Integrated Data Model

Workflow, Validation and Control Cartesis Suite

External Source Integration

GL Legacy ERP CRM SCM

Figure 1: The Cartesis Suite Solution Provider ■ Chief Financial OfficerChief Financial ers can perform on-the-fly, Us resident of Cartesis, Inc. Chief ExecutiveOfficer P ice President Corporate ice President Product Marketing V Cartesis Planning leverages ES V alk, CT 06851 .cartesis.com or Walker, or Walker, rrittview rw ful Analytics: éronique d’Adhemar, éronique d’Adhemar, ophie Callies, ophie Callies, r ax 203.956.2810 Marketing Trev Cartesis, Inc. Me 383 Main Ave. No Phone 877.964.0202 F [email protected] www Business Contact Phone 877.964.0202 [email protected] Cartesis is a global software company pro- to solutions best BPM viding the world’s of today’s companies.many CPG leading Didier Benchimol, Marc Schnabolk, V S ides planners with sophisticated driver-based omates manual procedures; stakehold- givesall t ended core planning module to allow headcount, ended core planning module allow to we t ov ingle Platform:ingle hanges in variables on their business. hanges in variables alary level. and benefit planning at the employee aster to implement and easier maintain (no inte-aster implement to to Po S Pr the impactmodeling of capabilities analyze to c reports; multiple Eliminates need for facilitates value- add analysis. Au ers visibility the planning approval into process. Ex s F required); no duplicate data or business rules; gration eliminates errors. ernatively, the DataTriever can be used eliminate to the DataTriever ernatively, t xisting platforms automated feeds of data, xisting by accepting users perform top-down planning, margin planning, driver-based budgeting, annualization and run-on/ run-off analysis. ETL processing. and costly complex Benefits multidimensional drill-down analysis by customer seg- by customer drill-down analysis multidimensional ment, product, business line or a number of channel, other dimensions. Furthermore the they can leverage capabilityDataDrill view to and other transactional databas- detailed relational in corporate data that resides es or data warehouses. e systems. from various and business rules hierarchies Al ■ ■ ■ ■ ■ — Group Financial Controller, Diageo — Group Financial Controller, ions. Co-developed with leading companies, with leading ions. Co-developed t esis ES Planning enables finance departments Planning enables esis ES arn how your organization can meet its critical za le e-Built Financial Servicese-Built Financial Functionality:

control of the budgeting,control of the and planning forecasting ni

mizes peer-to-peermizes intercompany reconciliation over ormance management requirements and achieve Pr To ti atures and Functionality f-service consistent access to and real-time business rf ith Cartesis Planning, ES planning, and forecasting streamline the planning process, create confidence l ke ga

et, Cart et of powerful are auto- changes and all business rules rom disparate sources repository a central into allow to ormance over the Web. orecasting and reporting software that meets solutions Cartesis Planning’s out-of-the-box-functionality ES lets matically synchronized across the entire organization. across synchronized the entire matically Fe One Set of Data: One SetOne Application; of Rules; W ver- in one single reporting in one place, resulting are all sion of the truth, every by one The data is governed time. s information for planning, for and management information forecasting reporting purposes. the Cartesis Planning platform provides out-of- rich the-box functionality meet to the unique requirements of finance departments verticals. its With across all expertisesingular focus and demonstrated in the mar- k to in numbers and engage in “what if” scenario modeling. It has been architected integrate data seamlessly to f se the Web for faster closing cycles faster closing using the Cartesisthe Web for Intercompany Server. business results, pleasemeasurable visit www.cartesis.com. pe Enterprise Planning, Forecasting And Reporting Software Solutions CartesisPlanning provides ES enterprise planning, f largestthe needs of the world’s and most complex or Spotlight Cartesis on Planning ES Cartesis Intercompany Server Op ers of this.” all Cartesis Magnitude Information DeliveryCartesis Magnitude Information DeliveryCartesis Magnitude Information enables business per-business users access and analyze to f feel needed to confident that the software“We power- was needs, cope our changing ful enough to and adapt to with, – Cartesis as being user-friendly Magnitude deliv-as well process with Cartesis Planning. ES Cartesis Planning Ta Adopting the Right Processes

The next frontier in company efficiency is deploying systems born of philosophy and managerial insight as well as software.

tools & technologies Brian Queenin | Xtropian

he consumer products (CP) industry is constantly the conversion of those strategies into plans; and the Tsearching to improve processes and reduce costs monitoring from a forecasting, reporting and analytics within the overall context of doing business. After years of view from a financial and operations standpoint, with a squeezing out performance improvement from advanced solid underpinning of technology. The core processes ERP and CRM systems, looking inward toward an over- include strategic planning, establishment of key metrics, all business performance management (BPM) approach value drivers, agreed-upon goal setting, budgeting, is the next frontier of efficiency. communication, financial consolidation, analytics, report- Too often business leaders have witnessed the tening and forecasting. These all culminate with an effective dency to rush off and follow the latest trend in industry management process designed to better operate the or in technology. The result is a fragmented deployment business. As far as the technical component is con- of systems, reporting solutions and effort not necessarily cerned, this is the glue that holds the BPM environment aligned to corporate strategy. The thought of harvesting together. Having access to the right data, in the right time the touted benefits ahead of the competition is an appeal- frame, and using business definitions that are universally ing lure. However, the results of this approach are quite understood within the business, help provide the techni- mixed, often falling quickly on the field of expensive and cal foundation for better decision making. strategic failures, while distracting from core business 18 concerns. The difference here is that BPM is not a fad, Difficult Challenges nor is it untested. The overwhelming need to better man- In consumer products, the ultimate goal has often been age the business in multiple dimensions has surfaced the ability to determine the value of each customer. in many heated conversations in the board room. It is in The difficulty here has been solving the internal issues some of those sessions that the confusion and directional posed by multi-company accounts, fragmented cus- dysfunction begins. tomers and naming conventions established by brands or internal company codes, diverse global naming pat- By Any Other Name terns and internal politics. These components cloud the The phrase business performance management has ability to answer the question of value. Disparate sys- taken many forms – most popular are BPM, CPM, EPM, tems and data structures make determining the value xPM and PM. This name game combined with what is of a customer a daunting challenge. Compound this actually embraced in the message and the resulting solu- reality with the need for accurate and timely promotion tion also add to the aforementioned confusion and dys- analysis and the question gets even more clouded. The function. Obtaining qualified guidance, advice and a task of measuring customer profitability and promotion logical outline of next steps can prove equally challenging. effectiveness becomes nearly impossible when you factor BPM is not a technology. Rather it is a set of capabili- in timely tracking of invoice items, deductions and mar- ties required to manage and optimize business perform- keting development spending. ance. BPM includes a method to determine which How do you, for example, measure who your top 10 strategies will drive performance, today and tomorrow: customers are? This question has become increasingly

Brian Queenin is managing partner and CEO of Xtropian, a firm specializing in enterprise performance management, business intelligence and strategic planning. He was a partner at Accenture in the EPM practice and the vice president and global leader of business intelligence at Capgemini. He serves on the board of advisers for several technology organizations and is a founding partner in The Center for Thought Leadership and Amodus. Consumer Goods & Retail Report tools & technologies more complex over the years and the answer to the offers the ability to secure an integrated view of the question is no longer based on volume alone. The roots economic impact each customer, product, brand or and meaning of the answer have more far-reaching market has on the company. The endgame is to focus consequences than ever before. The proliferation of on overall ROI and return on shareholder equity for all ERP systems has helped to provide management with aspects of the business. Historically, the business model effective tools to manage the supply chain, regulate allows the customer to leverage volume to obtain more inventory levels and reduce carrying charges, while favorable terms, better pricing, additional marketing at the same time providing insight and visibility to the development funds and increased promotional support. end-to-end manufacturing process. This represents These additional costs of doing business are often only a piece of the puzzle (a rear view of what did captured offline resulting in an inflated profit picture happen) and a glimpse of what is happening at this and a higher economic value of the customer. The moment – all valuable improvements to the process; complete set of detailed costs may not be captured, however, not integrated enough to answer all questions. or even more sadly, understood. A well-run BPM Business data at a granular level often escape these program links strategy to plans, embracing budgets,

Too often business leaders have witnessed the tendency to rush off and follow the latest trend in industry or in technology. The result is a fragmented deployment of systems, reporting solutions and effort not necessarily aligned to corporate strategy. systems. Management insight is impaired, resulting in analysis, accurate accounting of brand and customer 19 faltering profits and market position in the absence of spending and time to react to market conditions an integrated view of the business. through exception alerts and focused reporting. A true and accurate top 10 client listing is attainable, even Speedy Reflexes when segmented by volume, profit, promotion sales Business performance management, at its core, allows activity, brand, division or geography. for the effective placement of a lens over the business. This process becomes part of management’s This lens provides visibility to pieces of the business operational DNA, embracing process changes as a that might be moving off course. In addition, by seeing component of the business cycle. When a company what is really happening, a solid analytical base can increases the times data can be examined and tactical be developed to assist in anticipating what is likely to plans modified, the higher the chances of overall happen in the short term. When cycled quickly and performance improvement. As the cycles are more frequently, analysis can be performed to test compet- frequent, based on true visibility to value drivers of ing scenarios and the business impact of each. With the business, profits rise, cash flow improves, strategies these tools, management can react to market trends are attained and the next planning cycle is enhanced. and conditions as they happen. BPM provides action- In many ways, real-time BPM is fast becoming a reality able tools to drive corporate results in an active way in many top organizations, thanks to the strides in rather than passively explaining historical results and technology and the fiercely competitive consumer missed opportunities. products marketplace. BPM can also allow executives and department Performance management isn’t just a set of philo- heads in consumer products to manage and make sophical statements anymore. Real profits can be business decisions in real time – actually playing the improved and action taken in a concrete manner game on the field, not reading about it in historical with these tools. Dreaming about them is no longer reports. Beyond the one-off reporting solution, BPM necessary. ■ Case Studies: Leveraging BPM

These companies have improved their bottom line or are raising their targets by streamlining their processes and using business performance management. tools & technologies

s introduced in the preceding chapters, CPG com- ■ Enabled the avoidance of an 80-plus percent increase Apanies are recognizing the profit possibilities of in headcount; performance management. CPG companies are begin- ■ Reduced the need to expedite products using air ning to see BPM as a state of mind and a management freight and other extraordinary costs during a change philosophy and not just a suite of software. More impor- in cooperative distribution arrangements; tant, these companies are realizing the benefits. ■ Reduced transportation costs, enabled by a reduction in carriers from 140 to 35; and The Perfect Supply Chain ■ Lowered cost of goods sold by stabilizing plans pro- Brown-Forman, one of the largest American-based vided to production units, suppliers and distributors. companies in the wine and spirits business with 7,400 employees and revenues exceeding $2 billion, set out Reaching the Right People to increase annual earnings growth by 9 to 12 percent. Besnier, a European dairy company, increased prof- Many of Brown-Forman’s competitors had consolidated itability by adopting a philosophy that centered on through acquisitions, shed businesses unrelated to better understanding its customer. To do that, the wine and spirits and achieved economies of scale not company created a high-performance EPM marketing immediately available to Brown-Forman. When Brown- function to build customer loyalty and enhance the 20 Forman began to explore its options, the company corporate brand. embarked on a supply chain value assessment. The With critical consumer information in hand, Besnier assessment estimated a favorable impact on profitability soon launched a consumer loyalty program, which ulti- if Brown-Forman lowered inventory, enhanced service mately helped the company save $12 million in market- to distributors, reduced stock-outs, improved production ing costs while generating additional revenues projected efficiency, lowered procurement costs and addressed as high as $1.7 billion. The company needed to increase other supply chain issues. corporate focus on marketing and brand development. The assessment set in motion 11 change projects that Particularly, Besnier required the ability to develop deep Brown-Forman undertook over the next few years. A customer insights to better understand its customer and critical component was the company’s performance enable the creation of a high-performance marketing management blueprint for supply chain planning. The function to build customer loyalty and enhance the cor- blueprint supported a new organization with more for- porate brand through a target-segmented marketing mal and visible processes, focusing on Brown-Forman’s plan. As a result, the consumer loyalty program was building inventory and production capabilities. Given aimed at generating additional revenues from existing that information, a dedicated supply chain planning high-value customers. group was created to execute the new processes, shift- Besnier’s EPM initiative included a multistep program ing operations personnel to teams covering supply chain to capture basic information about consumers and their and related processes, including forecasting, master purchasing behaviors, and then identify the best targets planning, production scheduling and warehousing. The for a loyalty program. The company’s project team devel- results: oped customer information from panel studies and exter- ■ Decreased global inventory by 23 percent while nally purchased information. The team used data mining maintaining product availability and customer serv- software to best understand patterns in customer behav- ice levels; ior along multiple dimensions. Highly targeted direct ■ Increased inventory turns by 21 percent; marketing initiatives helped to increase marketing effec- Consumer Goods & Retail Report tools & technologies tiveness and deliver high-performance results. The loyalty program, for example, is supported by a one-to-one direct marketing approach complete with a consumer reward component. The analysis of data from the marketing program indicated that customers would be highly responsive to such a program. The consumer loyalty program is indeed improving marketing effectiveness – enough to drive $12 million in savings. With happier customers, Besnier projects revenue enhancements of $600 million to $1.7 billion.

Grace Down Under Pressure Lion Nathan, Australia’s second-largest brewer, makes and markets beer with breweries in Australia and China. The beer market in Australia is dominated by two major players: CUB, a subsidiary of Foster’s Brewing, holds 56 percent of the market, and Lion Nathan holds 43 percent. Amid tight competition, Lion Nathan was under enormous pressure to optimize its operations With critical at a national level. There was also a strong need to consumer information improve service levels to claw back market share without increasing costs to the business. Among the in hand, Besnier soon company’s specific challenges: ■ Low sales forecast accuracy leading to higher-than- launched a consumer necessary inventory levels and discounting or write- offs of aged or surplus stock; loyalty program, ■ An as-is forecasting process lacking the flexibility to which ultimately deal with the volatile, seasonal and event-driven beer 21 market; helped the company ■ No national forecasting tool or process; ■ Disparate parts of the business using different num- save $12 million in bers; and ■ A forecasting process with no link to operations on a marketing costs. national level.

To respond to these challenges, Lion Nathan set out to design and execute enterprise performance management ■ Use EPM tools to provide one forecast number, drive initiatives that forged new customer-facing policies and improved forecast accuracy and provide a basis for processes enabled by leading EPM vendors. Focusing on KPI reporting. the supply chain, Lion Nathan was soon able to: ■ Implement a demand planning tool; Lion Nathan saw a one-time inventory reduction of ■ Develop a new sales forecasting process; $1 million, with annualized interest savings of $120,000. ■ Develop a balanced scorecard performance meas- Savings of $240,000 are expected from reduced dis- urement report for the sales forecasting project; counts due to aged or surplus stock, and KPI measure- ■ Revamp the change process to include improved ments are now in place to provide forecast accuracy as stakeholder analysis and management, communica- well as to improve promotions , event capture and analy- tion planning and execution, and review and realign- sis that occur within the forecasting process. The brewer ment of performance incentives, accountabilities, job now has a more flexible and improved forecasting redesign, etc.; and process that is capable of dealing with seasonality and ■ Guide and assist with the development of training periodic event management in a speedier and more programs and quick reference guides; and accurate fashion. ■ RFID and Enterprise Data Collection for Consumer Goods Acsis, Inc. is a worldwide leader in delivering enterprise data collection solutions for Supply Chains companies deploying enterprise resource planning software solutions. An EPCglobal

Solution Provider member, Acsis specializes in real-time business process automation, specifically mobile data collection and RFID solutions. csis, Inc. is a worldwide leader in enterprise data Acollection and supply chain solutions and services. Steven G. Selfridge, President and CEO Headquartered in Marlton, N.J., Acsis provides RFID and Russell Patrowicz, Vice President, Business Development bar code software and solutions for global enterprises. Dennis O’Malley, Executive Vice President The company has deep expertise helping companies and COO

tackle complex RFID projects and integrate RFID into Acsis, Inc. existing ERP systems and business processes. 3000 Lincoln Dr. Marlton, NJ 08053 Acsis also helps companies extend their RFID initia- Phone 856.489.4900 tives beyond compliance to bolster their own business www.acsisinc.com [email protected] processes. Point-of-purchase (POP) display tacking, for example, has emerged as a compelling business case for Business Contact Russell Patrowicz consumer products suppliers interested in achieving Phone 856.673.3131 return on investment for retail-compliance deployments. Mobile 609.502.4063 [email protected] Ensuring POP displays are on the store floor when the consumer is ready to buy is critical to the success of suppliers’ larger marketing initiatives and product promo- understood by SAP systems. Acsis provides complete tions. With the capability to store vast amounts of Data-Link and SAP AII Implementation Services. information, RFID tags can also provide necessary analytics to increase the effectiveness of promotions and Customer Success drive demand. Bayer Consumer Care chose Acsis not only to help the company meet Wal-Mart’s RFID deadline but also to Partners and Products ensure that the retailer complies with Consumer Care’s Building on a long history in enterprise data collection in-store marketing activities. With Acsis as its trusted and business process automation, Acsis has expanded technology partner, Bayer Consumer Care leveraged

Acsis has deep expertise helping companies tackle complex RFID projects and integrate RFID into existing ERP systems and business processes.

its range of technology solutions to meet market demand its RFID implementation to monitor the deployment of its for RFID driven by mandates from retailers and the Depart- POPs throughout their life cycle. Consumer Care’s log- ment of Defense. Working with an extensive list of partners, istics staff can now alert retailers when a POP display which include SAP, Accenture, CSC, Alien Technology, that should be on the store floor is left in the back room. Intermec, LXE, Symbol, Printronix and Zebra, Acsis facili- Consumer Care is also assured that in-store marketing tates complete end-to-end RFID deployments. programs will be effectively coordinated with the timing As a longtime SAP partner, Acsis has deep roots of its advertising and other promotional campaigns, working with SAP R/3® systems, the ERP option pre- ensuring maximum marketing impact. ferred by a majority of CPG companies. Through its When armed with a partner that can provide soft- Data-Link 5.0 software, Acsis provides seamless inte- ware solutions, expert consulting services, systems gration of RFID devices and information into the SAP integration, the necessary hardware and ongoing Auto-ID Infrastructure, enabling users to integrate data training and support, CPG companies stand to gain from RFID and other devices into a format that is easily exponentially through the use of RFID. ■ tools & technologies

The RFID Challenge

Radio frequency identification tags will deeply change the CPG and retail industry. Being ready to vastly adjust your product codes may make or break you.

Eric Reyes

mong all the technologies available and some that loyalty cards to track a deeper understanding of what Aare about to bubble out of beta soon, some atten- customers are buying in a more real-time manner. tion needs to be paid to a growing technology for the Of the 200 or so suppliers that Wal-Mart wants to CPG and retail industries that will only get better. Radio sign up for RFID tags, 130 are already using the tags – frequency identification (RFID) tags have been a long including Campbell Soup Company and Unilever – time coming. With the big news that retail behemoth and the company wants at least 200 to use the tags Wal-Mart would undertake an aggressive campaign to by the end of 2006. That’s involving a tag in most of the recruit all of its suppliers to adopt RFID, the technology – nearly 10 million credit, debit or check transactions the as they say – has entered prime time. The Pentagon is store makes every day. also beginning a drive to outfit military operations and Wal-Mart isn’t the only company trying on RFID. supplies with tags. Computer- and electronics-maker Hewlett-Packard is It is now only a matter of time before the true informing consumers that some of its products are moni- possibilities of RFID will become known. Essentially, tored via RFID. HP also is rolling out software to help RFID tags can replace the current UPC scanner manage your RFID initiatives. code on all products to allow each product to be In fact, there are many companies dealing in RFID scanned wirelessly at a distance. It’s actually a pretty either by making the tags or by offering software, imple- simple concept, yet the potential for cutting costs mentation services and other resources. They include 23 and tracking inventory is great. Alien Technology, Matrics, MPI Label Systems, RFID Inc., Right now, one of the leading makers of the tags, SAMSys Technologies and Texas Instruments. Alien Technology, charges about 12 cents per tag. The company recently discovered a cheaper method Testing, Testing of making the tags and so the price has come down. So far, individual consumer product companies that have Most consumer goods companies, however, seem to spent the better part of two years testing the tags and their be waiting for the price to drop to 5 cents per tag. readability have found a few kinks but quickly discovered Briefly, RFID technology is made up of a very that the quality of a tag had a lot to do with readability. small battery that powers a radio signal. The signal Sometimes the product cases on a single pallet weren’t broadcasts a unique serial number for the product. accurately accounted for, but in terms of pallet counts, the An inventory officer can essentially be in his office tags worked great. There is also some concern that the and know what is in an unmarked packing box, how high-frequency spectrum that RFID runs on varies ever so many there are and where it is slated to go. By the slightly from country to country – a stumbling block for end of 2005, Wal-Mart is expected to have the tags – global companies. what it calls “electronic product code” – in use in 600 The test results speak to critics who think the technol- stores and a dozen distribution centers. ogy isn’t up to the task yet, that it is a technology without The tags’ immediate benefits are to make sure pro- standards yet and that the jury is still out on massive duce gets to the stores before the sell-by dates and to set conversion making good business sense. Some analysts order to stockrooms. Also, the tags can be aligned with have called the pace of adoption “reckless,” especially for

Suppliers of RFID Software rfid is actually ■ Business Objects ■ i2 Technologies ■ Microsoft a pretty simple ■ Oracle ■ PeopleSoft ■ SAP AG concept, yet the ■ Sun Microsystems ■ potential for cutting webMethods

costs and tracking RFID Benefits ■ No out-of-stocks ■ Better product safety inventory is great. ■ Complete visibility of inventory ■ Better customer profiling ■ No more spoiled product

a disruptive technology. While some companies are momentum Wal-Mart has started with its massive plan, 24 clearly excited by the possibilities, analysts caution that analysts believe most companies need to think small tags are too young for widespread use yet. before they invest huge amounts of time and money. In And there is still wavering among product executives. fact, a recent survey noted that 23 percent of companies Surveys have shown that executives at CPG companies using RFID technologies right now are running only a pilot fear the costs of conversion will be high and that retailers program. Only 8 percent are geared up for total deploy- they supply their products to simply will not have their ment while 18 percent say they have no plans to evaluate processes ready. In fact, a little more than half of executives RFID at all. think it will be 10 years before RFID spreads industrywide. Despite some trepidation on the part of CPG compa- A full 10 percent of executives surveyed think RFID will nies, analysts still forecast that 40 percent of all manufac- never be widely adopted. Many say there is no clear return turers will have adopted RFID by 2010 – in a variety of on investment map, and they are right. RFID touches so industries: automotive, aerospace, mining, packaged many areas, that weighing the hard numbers is very difficult goods, high tech and big pharm. To help smooth out the and certainly involves more research than a company is transitions, Sun Microsystems has built three test centers willing to make just to find out if they want to enroll in a pilot. with operating conveyor belts so that companies can come and check out RFID before they pilot one them- Small Steps selves. Once implementation is embedded, companies As with any large initiative, the secret may be to start will undoubtedly come up with new uses for RFID tags small with any RFID vision. Ignoring for a moment the and technology. That will be the exciting part. ■ Chapter 2

onger just a programmer with more pay, the CIO of the future must be a planner the CIO with more pay, onger just a programmer s an executive you can have all the technology the s an executive all you can have on the planet at your fingertipsbe in the dark. The and still biggest in this new you must have century skill is the l shopping habits and big retailers fact-based change themselves, their data to keep ling must enter the 21st century as well.

member the Newton? who are trying of other CEOs So do a lot be innovative to l ompliance Limits Can Free Your Company ompliance Limits Your Can Free ou wouldn’t think of scrutinizing your data in a vacuum. You’ve got to know to got what it You’ve think of scrutinizing your data in a vacuum. ou wouldn’t C The New CIO New Products the Leadership From Come Category Management at a Crossroads How to Act on Data Analysis on Data How Act to and a business manager who just happens know to IT. without breaking the bank. se Amid the tension, headache and expense of Sarbanes-Oxley making is a scheme for enterprisethe entire better. Re As Y means it often and examine on the micro and macro level the right decisions. make to No

e it. 38 32 36 30 26

ability know to numbers what the and metrics mean.Data softwareanalysis is a great your CIO is helpful and consulting benefit, but knowing a big executive how make to decision has read to must be able never been as important You as it is now. and whether govern- missing or skewed is what information ment compliance is dragging down your business. Managers need of expertise a strong infrastructure and the confidence to us A Management StrategiesManagement How to Act on Data Analysis

You wouldn’t think of scrutinizing your data in a vacuum. You’ve got to know what it means on the micro and macro level and examine it often to make the right decisions.

Russ Hill | Business Objects management strategies

t has never been harder to compete than it is today. Think Believe it or not, that actually makes some sense. BI Iabout it. Consumers are more demanding. Competitors tools tend to cost – at minimum – tens of thousands of dol- are more numerous and more specialized. Distributors are lars. Larger deployments routinely reach into the millions. more demanding. Supply chains are more complex. And Shouldn’t software priced at such a premium know where markets are global. How in the world can any of us expect to look for insights? If only it did. The advice offered by The to make a profit in that kind of environment? Advisory Council, a technology advisory firm, to readers of Listen to enough analysts and they’ll tell you that the InformationWeek lends some perspective: “Before invest- answer is some form of data analysis tool. Being in the ing in one of these systems, it’s important to understand business of business intelligence (BI) software, it is hard how these tools can help extract the information to gain to disagree. But business intelligence alone can never competitive advantage, while avoiding some of the pitfalls.” substitute for good management. In other words: Good data analysis, just like good management, always begins with asking questions. What Is Data Analysis, Anyway? The real irony in retail is that there is plenty of data. Ask What Do You Want to Know? any retailer what their sales were for the day, how many Take the case of Bigelow Tea. Bigelow is the brainchild customers came through the door, and what inventory of Ruth Campbell Bigelow, who perfected her signature 26 was sold, and they’ll be precise down to the penny. teas more than 50 years ago. Today, her blends and

The mistake that most make with data analysis tools is they assume the technology will measure what’s important.

Some nationwide chains even have interconnected sys- dozens of other more modern flavors adorn grocery tems operating with the help of the Internet that can cal- shelves across the country. culate aggregate totals nightly. Bigelow operates in a complex business that demands That’s useful for producing financial statements, of logistical expertise and careful inventory management. course. But it has almost zero bearing on the quest for Ship too much and returns pile up. Ship too little and operational excellence. And therein lays the mistake that demand slackens, creating massive opportunity costs. most make with data analysis tools: They assume the Getting to an appropriate balance required several technology will measure what’s important. questions be answered, but two were most important:

Russ Hill manages Business Objects’ WW industry marketing for retail, consumer product goods and distribution. With more than 27 years in the retail and data warehousing industry, he has a variety of marketing experience and expertise. He began his career with JCPenney and NCR Teradata and has been a member of the General Merchandise Distributors Council and a member of Voluntary Interindustry of Commerce Standards. Consumer Goods & Retail Report management strategies

In that sense, data analysis software is best used as a Business Cycle Analytics Workforce Analytics key ingredient for a business improvement plan. Here are

As of 31-Oct-2000, the revenue cycle has the following value five steps to getting started: 9,468,641 10,000,000 6,208,346 3,632,346

950,975 1,000,000 Period End 170,488 Balance 100,000 Quote to Order Invoice to Collection Order Approval to Shipment Order to Approval Shipped to Invoice 1. Examine Existing Processes. 10,000,000 Every business has break points, but they often go unseen. 1,000,000

100,000

10,000 That’s because so many remain buried in processes that 4 + 0-1 2-3 0-5 11 + 61 + 61 + 61 + 6-10 0-30 0-30 0-30 31-60 31-60 31-60 are born and nurtured through culture rather than rea- Approval Approval Approval Quote to OrderQuote to Quote to OrderQuote to Quote to OrderQuote to Order Order Order Shipped Invoice to Shipped Invoice to Shipped Invoice to son. Ironically, this problem can be alleviated through the Invoice to Collection to Invoice Invoice to Collection to Invoice Invoice to Collection to Invoice der Approval Shipment to der Approval Shipment to der Approval Shipment to Or Or Or often-onerous Sarbanes-Oxley requirements, which require an assessment of internal controls having an impact on financial performance. Going through that Figure 1: A representative data analysis interface exercise can create a useful blueprint for the deployment of further data analysis. ■ Where is demand trending high? ■ Where is it not? 2. Determine Questions to Be Answered. Once the break points are identified the next step is to Just picking these questions to answer was the key to question how they effect operations and what changes establishing a BI infrastructure that created process might be made to improve performance. Tests – much improvements that, in turn, led to higher profits and like McDonald’s tests with its wireless handhelds – can more effective promotions. then be carried out. Bigelow proves how data analysis can be successful when questions inform the deployment. Fast-food king 3. Design BI Backbone to Monitor Processes. McDonald’s shows how it can be taken even further. It’s at this point that data analysis tools become truly use- Because of the nature of McDonald’s business, its sales ful. New processes can be monitored and compared with and profits are entirely dependent on how many cus- historical norms to predict a performance impact, which tomers it can serve hourly. In the United Kingdom, can also be used to measure the return on investment of managers decided to test ways they could increase the both the software and the new processes. 27 number of customers served without having an impact on service levels. Business intelligence software was 4. Make Improvements. installed to help monitor operational performance This is pretty straightforward. Once you’ve proved the across the nation’s 1,300 restaurants. impact of a new process, such as McDonald’s decision Two initiatives were tried. First, McDonald’s tried to open its stores earlier, widespread change is the next opening selected outlets 30 minutes earlier. The data step. Just be sure the changes don’t move in front of the analysis strategy was specifically designed to under- data analysis infrastructure, otherwise measurement stand whether the restaurants could capture enough techniques will quickly become irrelevant. customers to justify the additional employee expense. It did, and the practice was adopted nationally. 5. Refine BI Basis to Track New Processes. A similar data analysis strategy is currently under way to Ongoing testing, tracking and deployment of process test the effectiveness of handheld wireless devices in reduc- improvements are the ultimate goals of data analysis. In ing wait times and increasing sales. Roughly 160 restaurants that sense, the technology infrastructure you put in place are also testing a new menu item – the deli baguette. Data to track, understand and manage data will always be in analysis is being used to understand if there is enough con- flux, moving in lockstep as business improvements are sumer interest in the new product to add to profits. put in place. As with all things in business, data analysis can never What to Do Next live in a vacuum. So don’t think of it as static technology. Data analysis isn’t all science. There is a degree of art to it, Think of it instead as a critical piece of the business strate- as well, such as knowing the right questions to ask. You gy puzzle that gets examined and refined each and every simply can’t use data analysis software if you don’t know quarter. Indeed, in the fast-moving retail and consumer what you want to measure, or have some theory about products markets, that may be the key not just to profits, how process changes could improve operations. but also to survival. ■ Improving Performance in the Consumer Product Goods Industry

onsumer packaged goods (CPG) firms today ■ Trade promotions management; ■ Solution Provider Coperate in the most competitive and commoditized Supply chain optimization; marketplace in the history of commerce. The need to ■ Enterprise performance management; work smarter, perform better and make faster, wiser ■ Collaborative planning and forecasting; and decisions has never been greater. ■ Category management services for customers. At Business Objects, we enable CPG customers, across all categories and around the world, to make Business Objects Business better decisions and improve enterprise performance. Intelligence: Key Benefits From leading apparel makers, personal and household ■ Significantly improve top- and bottom-line care companies and food and beverage manufacturers performance; to paper and business forms makers and pet products ■ Empower CPG executives to track, understand and companies, our business intelligence solutions empower improve business performance; CPG companies to: ■ Enhance customer services and trade satisfaction; ■ Determine profitable trading partners and enable ■ Increase effectiveness of sales and marketing collaborative process improvement; activities; ■ Integrate management and financial reporting to ■ Reduce and control sales and marketing costs; improve performance; ■ Deliver meaningful insight to CPG executives; and ■ Reduce and control sales and marketing costs ■ Decrease risk with a proven technology solution, through improved analysis; backed by the leader in business intelligence. ■ Manage assets and improve capital utilization; and ■ Efficiently profile and analyze multichannel traffic. Customer Value Management for CPG As the world’s leading business intelligence (BI) soft- To respond even further to the demands of the ware company, Business Objects has helped over CPG industry, Business Objects has joined forces 30,000 customers worldwide, including Anheuser- with Accenture, a Business Objects top-tier global Busch, Kraft, Levi Strauss, PepsiCo, 3M Company and alliances partner, to enable CPG customers to improve Unilever, to gain better insight into their business, their understanding of campaign effectiveness, sales improve decision making and optimize enterprise per- channel performance and the impact of promotional formance. pricing on margins. Leveraging our broad and deep experience in per- Customer Value Management is a packaged busi- formance management for the consumer product goods ness intelligence solution that empowers business industry, we have specialized solutions to meet the specif- leaders across the CPG enterprise to track, understand ic needs of CPG customers, including: and manage their performance. Through an intuitively ■ Sales and marketing effectiveness; designed and flexible management dashboard, users ■ Brand assortment optimization; gain visibility into key performance indicators and met-

As the world’s leading business Business Objects has helped Solution Provider rics. This translates to faster and more informed decision making, improved visibility of profitability drivers and an improvement in relationships with partners up and down the supply chain. Business Objects, the makers of The CVM solution includes predefined processes, BusinessObjects XI and Crystal workflows and data schemas, customized for organiza- Reports, is the world’s leading business intelligence (BI) software tions focused on the CPG business. Analytics for various company. business processes, preconfigured reports and preset John Schwarz, Chief Executive Officer data transformation and loading procedures are included Bernard Liautaud, Chairman of the Board in the package; an end-to-end reporting and perform- Hervé Couturier, Senior VP, Products ance management system is enabled to be operational Greg Wolfe, Senior VP and General Manager, within weeks, not months or years. Americas Operations

Business Objects Delivering Meaningful Insight 3030 Orchard Pkwy. To CPG Executives San Jose, CA 95134 Phone 604.681.3435 Business Objects’ world-leading business intelligence Toll-free 866.681.3435 solutions, including Crystal Reports and Business Fax 604.681.2934 Objects XI, provides CPG executives and process Business Contact owners with timely, intuitive and powerful tracking, David Joyce measuring and management of business performance. Partner Development Manager Phone 770.350.7165 Discover how Business Objects can help you david.joyce@businessobjects.com increase the value of your customer relationships, augment your organization’s overall efficiency and profitability and gain the insights you need to enhance ing and optimize enterprise performance. The compa- your enterprise performance. ny’s business intelligence platform, BusinessObjects™ XI, offers the BI industry’s most advanced and complete Take the Next Step platform for reporting, query and analysis, performance For more information on Business Objects’ solutions management and data integration. BusinessObjects XI for CPG, including the Customer Value Management includes Crystal Reports®, the industry standard for solution with Accenture, please contact your location enterprise reporting. Business Objects has also built Business Objects representative, or call 866.681.3435 the industry’s strongest and most diverse partner (toll-free North America) or 604.681.3435 (outside community, and offers consulting and education servic- North America). es to help customers effectively deploy their business intelligence projects. About Business Objects Business Objects has dual headquarters in San Business Objects is the world’s leading business intel- Jose, Calif., and Paris, France. The company’s stock is ligence software company. With more than 30,000 traded on both the Nasdaq (BOBJ) and Euronext Paris customers worldwide, including over 80 percent of the (ISIN: FR0004026250 - BOB) stock exchanges. More Fortune 500, Business Objects helps organizations gain information about Business Objects can be found at better insight into their business, improve decision mak- www.businessobjects.com. ■ intelligence software company, over 30,000 customers worldwide. The New CIO

No longer just a programmer with more pay, the CIO of the future must be a planner and a business manager who just happens to know IT.

Eric Reyes management strategies

hen the role of CIO was first defined it had a Executives now must give their CIOs the ability to Wwhole lot to do with managing the growing tech- reap the benefits of being pro-change. In the short term, nology that was quickly becoming a necessary part of the new CIO must do the following: being a smart company. Now corporations have vast, ■ Software has changed a lot from the time when CIOs complex, even all-encompassing IT departments. And were first given that title. Software today permeates while certainly no one wants to go back to flint and stone, every area of the business and therefore must be CIOs must change to stay vital. applied in a mature way to the systems most critical: The new and improved CIO‘s mandate is not to be the supply chain and how users interface with the com- one who approves the purchases of IT systems. The new pany. This requires “selling” departments on new CIO must be an evangelist for change throughout the blueprints for marrying functions and processes company. More than at any other time, the CIO needs to with technology. acknowledge that new skills are needed to be a leader at ■ CIOs must convince the entire company that time the 21st-century company. Her new job is to make sure is no longer the enemy. Software does so many the company is changing in the right way to allow tech- things so much faster than just 10 years ago, yet so nology to aid it the best way it can. This does not mean many employees are using the slower paper/manu- to promote changing your company to fit technology. It al/work-around methods of 20 years ago. No one 30 means to recognize and promote ways the company can has trained them or is enforcing the new processes use technology in a way to make it more profitable. That on them. means advocating changing internal processes, revamp- ■ Buy less technology, not more. A system must be ing departments and examining core systems. It requires put into place that helps evaluate the value of the a new set of skills. Many may not be up for it. software that is being pitched at the company. With so much of the CIO’s attention being pulled every The New Orders which way, overload and paralysis are bound to The new role for the CIO will be to become more of a set in. This is where the CEO must be able to notice “change generalist.” She will take her rightful place at and follow what is being pitched and where potential the upper management table as someone who must bottlenecks are. interact and be well-versed on what managers in all departments do, what they need and what they can Business as Usual do better. In the past, CIOs saw themselves as only a More than at any other time, the CIO’s new responsibility slender part of the ownership pie. And since they saw is to be in the business of knowing business. As such, this themselves as lacking the power somewhat, CIOs of role must be approached as a leadership position, with all the past have allowed their IT budgets to be squeezed the responsibility of an executive job title: the right kind of into nothingness. CEOs have also not seen the results power, respect, access and the CEO’s ear. promised from expensive software packages, so they The CIO must now touch many more levels of the are leery when a CIO comes to sell them on a new business than she did before. Not only does she interface piece of software. regularly with the CEO and any other top executives she

Eric Reyes is an editor at Montgomery Media. He has previously edited and written for Business 2.0, The New York Daily News, Amazon.com, Excite.com and The San Francisco Chronicle. Consumer Goods & Retail Report management strategies answers to, but she must also interact with operations Amid the fight to keep their job titles intact, CIOs managers and even drill down deeper to talk regularly need to acquire the business skills, alliances and support with the leaders of individual projects. This is the only to reshape the role – all while staying abreast of technolo- way to truly know the effectiveness of any new technology and the various projects and pilots already at work gy initiatives. It is also a method for business managers to inside the company. Not a stress-free situation. understand the business value of new technology plans Note that while the learning curve may be sharp, and for project managers to weigh in with their views. The the basic technology won’t change much (at least in CIO must look at all these people as allies and shapers of the short term) and that means a CIO can think about future initiatives. They will help the CIO instigate how all the ways using the technology can be changed. Since opportunities are judged and how change will unfold. a CIO’s strengths will be in the technical, ways to simplify that to meet business goals may be a good first step to Challenges Ahead take. Before taking on a new initiative, think about which CIOs will have many confrontations ahead of them. Some “older” programs can be eliminated. Consider putting business thinkers are even calling for the need to eliminate together a written assessment of all your major IT the role of CIO in most companies. This, of course, only resources and suggest ways they can become leaner. adds to the strain. But this just speaks to how drastically There are ways to keep the role of CIO relevant. She the job description needs to change – to an organization- could become the best visionary on your staff if allowed minded occupation from a merely technical one. to enact change from the inside out. ■

More than at any Things a CIO Used to Do ■ Rank requests for software ■ Convince managers they need a new software suite other time, the ■ Prioritize help tickets ■ Ensure hardware is maintained ■ Ask themselves, Does the new technology “work”? CIO needs to acknowl- ■ Work alone edge that new skills ■ Program are needed to be a Things a CIO Must Do ■ Know company strategic aims ■ Redefine business processes that touch IT leader at the 21st- ■ Assess how the changes are being received ■ Create alliances with managers in other departments ■ Ask themselves, Will the new technology achieve ROI? century company. ■ Work collaboratively ■ Plan New Products Come From the Leadership

Remember the Newton? So do a lot of other CEOs who are trying to be innovative without breaking the bank.

Eric Reyes management strategies

t’s no secret that consumer goods companies are Lead, Don’t Follow Ialways looking to innovate in all the categories they Among all the duties of upper management, you sell. Robust research and development indicates a can’t discount the value of tracking trends in your healthy company. The drive to bust out in certain cate- industry. Receiving summary reports doesn’t replace gories, even if you are already a leader, also shows the hands-on act of touching the product, talking to your company’s vigor. New products that gain real customers and going to trade shows. To be a leader in traction and become part of popular culture are god- your category you also have to recognize the potential sends. Branding like that is hard to conjure up, even pitfalls. No one could’ve predicted that one of the most from the lightning-genius brains of the hottest ad shop publicized and earliest electronic planners – the Apple on Madison Avenue. Newton – would actually be ahead of its time and that Reviving stagnant or flat product categories or sub- the PDAs of today owe so much to the failed Newton. categories has become a fine sport recently with some Some of the reasons it stumbled had to do with the real success stories. Even though your company may maturity of the technology. But Apple picked itself

Reviving stagnant or flat product categories or 32 subcategories has become a fine sport recently with some real success stories.

test a wide variety of new products – from peach-flavored up a decade later and hopscotched over the PDA breakfast cereal to stain-free clothing – lately, the few market to produce the iPod – the current portable that stick have garnered some great attention. And music market leader. copycats – the highest form of flattery. Examine these recent winners and see if you can The Swiffer – a kind of floor sweeper and mop mentally trace back to their inspiration. For many, it combined – not only revitalized the whole cleaning will be easier than you think: product area but also became popular with the younger Scotch-Brite Disposable Toilet Bowl Scrubbers demographic (probably a proponent to its success). with Built-in Cleaner. With the Scotch-Brite, users pret- Around the same time, the very popular thin-sheet ty much throw away any piece that actually touches the mints took off with imitators flooding the market and toilet bowl; users dispose of it by pulling a handle, and going head to head with the fashionable Altoid brand. the “dirty” part falls into the trash. These startling successes point to how an executive Toothbrush chic. Toothbrushes were just tooth- team with a finger on the pulse of popular tastes can brushes for a long time until design and licensing got approve winners. involved. The science of what constitutes a better brush

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based pigment and not real ink, and therefore less prone Even With the Best Research to stain. The pens, however, are marketed in a variety of neon and striking colors, making them more attractive When Kimberly-Clark and P&G released their ver- than the traditional blue or black. sions of moist toilet paper, they did it with so much confidence. Kimberly-Clark claimed to have spent $100 million and several years researching the All About Attitude technology and need for moist toilet paper. The In many ways these examples show how a grip on popu- company predicted its Cottonelle Fresh Rollwipes lar culture can lead to innovation that doesn’t just come would reach sales of $150 million in the first year. P&G stated that its wipes were the most significant from chemistry or a lab. In some cases, changing atti-

management strategies innovation since toilet paper itself came on the tudes contribute to a dramatic shift in the way consumers scene about 100 years earlier. perceive a product category. The best and possibly While selling in just a few markets and backed by a national, $40 million ad campaign, sales biggest example is the swing in buyers of wines. Spurred lagged. Then P&G said it would stop making its ver- on by rapidly falling prices, many stores began to stock sion. Kimberly-Clark has said it would stick it out up on the cheaper wines. The result was that many con- but admitted its sales were also “insignificant.” But moist toilet paper is an idea that still could sumers who had always been mystified by wine and the catch on. Kimberly-Clark has had a history of seeing supposed elitism of it suddenly embraced the grape and products through difficult times – it stayed with its literally bought it by the case. Kotex brand for five years before moral attitudes allowed the company to even advertise it. Moist Sometimes it is also a question of what the independ- wipes for adults could still be adopted, but not with- ents are doing. Monitoring the smaller stores to notice out a noticeable tipping point. what categories of product are moving can help you figure out why customers are buying and whether the trend is regional. Without an eye on what the smaller manufacturers are doing, catch-up time could take the better part of a year. Category Winners Like the Newton, some widely touted products that don’t exactly fly off the shelves can still teach a lesson. ■ Hygiene products Sony learned from the minidisc. It learned that some ■ Writing pens 34 ■ Wine interim technologies just don’t catch on. At the time, ■ Cleaning products consumers were still building their CD collections and ■ Ringtones were too attached to their Walkmans and Discmans to ■ Portable music players even think about another technology. And they basically didn’t until the portable MP3 player. Laserdisc players and discs suffered a similar fate. Of course, they were design has allowed unique and “cool-looking” brushes to kind of marketed as a sophisticated viewer’s entertain- enter the market. With the many licensing deals available ment system, yet came and went in about a decade. now, it has been much easier to make kids’ brushes with And, of course, Apple learned a lot from the Newton characters and funny toothpaste tubes. – that sometimes visionary leaders, like Icarus, can fly Colorful pens. The pen market has exploded with too close to the sun. In terms of packaged goods, there the introduction of fanciful colors and sleek design. The are certainly a lot of checkpoints from concept to store obvious market is school-age children and teens. Even shelf, but that doesn’t exclude the persuasive power of an though gel pens first came over from Japan in about evangelical CEO. Part of what makes Procter & Gamble 1984, it is only recently that the gel ink rollerball pen has products so evergreen is their traditionalism. Finding the become ubiquitous. The pen “ink” is basically a water- happy medium is the key. ■

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'1%'$!3!4-)2.-#., Category Management At a Crossroads

As shopping habits change and big retailers keep their data to themselves, fact-based selling must enter the 21st century as well.

Gian Fulgoni | comScore Networks Management strategies

ategory management, as practiced today, appears cial analysis of the data to determine the optimal type of Cto have reached a point of diminishing returns, with trade promotion to support a specific objective. For example: some leading supermarket operators and CPG manu- ■ What case price discount should the retailer get? facturers complaining that it fails them. The complaint ■ What type of merchandising support should be most often levied against category management is that it requested to generate the greatest increase in brand is not based on an adequate understanding of the drivers and category sales? of consumer behavior. This problem is magnified by the ■ Which SKUs are most responsive to merchandising fundamental changes in the way consumers shop for support and will help maximize category sales? groceries since category management first became pop- ■ What are the opportunity gaps for increasing category ular. Among the most important of these are the rise and sales by allocating more shelf space to certain SKUs? dominance of Wal-Mart, channel fragmentation, the time ■ How should promotional programs be varied by constraints on consumers’ lifestyles and new drivers of geography or store cluster within a market? consumer behavior. To understand the challenges facing category management and to identify potential solutions, These and a myriad of other analytical results were shared it’s helpful to look at how category management evolved. by manufacturers with retailers, thereby giving rise to fact- Category management has its roots in the emer- based selling and later category management. This also 36 gence of national UPC scanner tracking data in the late resulted in a wholesale embracing of trade promotions as 1980s. These databases, introduced by IRI with InfoScan a very effective means of driving sales at retail. In fact, it’s and later by ACNielsen with Scantrack, provided the not an overstatement to say that scanning data helped granular sales and promotion data that spawned “fact- drive a fundamental change in the way that CPG manu- based selling” – which later morphed into category man- facturers marketed their products. To see this, one has only agement. Prior to that, marketers had to rely, for their to look at the changes that occurred from 1978, when the market and competitive intelligence, on bimonthly first scanner was installed, to 1995, by which time the scan- Nielsen sales data collected via manual audits of retail ner had become virtually ubiquitous in supermarket, drug stores or four-weekly SAMI warehouse withdrawal data. and mass merchandise stores. Donnelley Marketing and One of the biggest limitations of these data was their Accenture have reported that during this period, trade pro- “aggregate” nature. Furthermore, it wasn’t possible to motion spending expressed as a percent of grocery sales accurately determine the retail sales impact of trade pro- grew from 5 percent to a whopping 13 percent. motions. But suddenly, the advent of weekly syndicated Because scanner data clearly revealed the ability of scanner data integrated with weekly data on price, pro- well-executed trade promotions to dramatically increase motion and in-store merchandising conditions brought brand sales, this helped drive a massive shift in manu- transparency to the marketplace. facturer spending toward trade promotion and away At first, many marketers were shocked to see the mag- from advertising. Using scanner data as its platform, nitude of the sales increase that could be generated at store category management has contributed significantly to level by aggressive price reductions and strong merchan- profit improvement for manufacturers and retailers in a dising support. But shock soon gave way to detailed finan- variety of other ways:

Gian Fulgoni is chairman and co-founder of comScore Networks Inc., a market research company. From 1980 to 1998, he was president and CEO of Information Resources Inc. In 1986, IRI introduced InfoScan, the first syndicated UPC scanner- based tracking service, which provided the granular databases that helped spawn category management. Consumer Goods & Retail Report Management strategies

■ It led to improved efficiencies in supply chain; The bottom line is that retailers and manufacturers ■ It led to sharper focus on costs; and who don’t stay in regular contact with their customers ■ It allowed retailers to obtain a fair return on invest- so as to incorporate a deep knowledge of consumers’ ment from investments in information technology. evolving needs in their category management efforts are increasingly likely to do so at their own peril. The Real Test Nothing lasts forever, however, and in recent years chinks Shopper Insights have appeared in the armor of traditional category man- A few companies are beginning to provide an innovative agement. As has happened in other industries, con- approach that can help supply the timely and granular shop- sumers are at the heart of the problem by “refusing” to per insights that are required for category management to shop in the same manner as they did in the past. remain an effective management tool. For example, in some The most significant example 18,000 supermarkets across the is the emergence of Wal-Mart as Hannaford: Raising the Bar country, Catalina has installed a retail behemoth. Wal-Mart’s electronic printers that are con- aggressive entry into the CPG “Hannaford has a long history of listening to our nected to the stores’ UPC scan- customers. We recognize that understanding cus- market has succeeded in siphon- tomers‘ opinions and desires is critical to main- ners. These devices are used to ing vast amounts of consumer taining our success – and our competitive edge,“ print promotional offers for con- spending from the supermarket said Kathy Moulton, Director of Customer and sumers while their purchases Strategic Research. “By partnering with comScore channel. In and of itself, this is and Catalina to conduct store-specific customer are being scanned at check out. obviously a major problem for satisfaction studies carried out through BAR®, As a result, promotions can be supermarket operators, but it’s we’re able to better understand our customers‘ precisely targeted to buyers of needs in a very cost-effective manner.“ made worse by the decision specific items or brands. Wal-Mart made several years Promotional offers can also be ago to stop selling its scanner data to IRI and Nielsen. targeted based on the shopper’s historical buying behavior Because of this, category management analyses conducted as captured through the retailer’s loyalty card program. today don’t cover the entire competitive environment. In a creative twist, Catalina and comScore have And it’s not just the absence of Wal-Mart data that’s an begun using the printers (independently of Catalina’s issue. As the CPG channel has fragmented, supermarkets promotional programs) to issue targeted invitations to 37 have found themselves competing for consumers’ dollars shoppers to participate in research surveys. The service with a variety of other retail formats, including drug, mass is called Behavior Activated Research or BAR. Invitations merchandiser, convenience, club, dollar stores – even office can be targeted on a store- and UPC-specific basis, yield- supply stores and home improvement centers (and most ing large sample sizes and providing a much-needed recently Wal-Mart says it will open health clinics in its research granularity. Using this research capability, stores). As innovative and nimble retailers have established retailers and manufacturers can easily communicate new channels of distribution for CPG products, their scan with their most important shopper segments and clearly data have often not been available through the syndicated understand the drivers of shopping behavior across the data suppliers, further exacerbating the problem for catego- entire retail landscape. It‘s a simple matter to use loyalty ry management. Today, however, an even bigger challenge card data to accurately identify important segments – facing traditional category management is a lack of timely such as heavy/light store shoppers or heavy/light cate- information regarding what is fundamentally driving con- gory buyers – and to use customized questionnaires to sumers’ buying decisions. obtain answers to important questions. Why are con- Today’s consumer bears little resemblance to the one sumers causing cross-channel shopping that walked the supermarket aisles when category man- to occur? What share of consumer spending within a agement first came of age. For example, a recent Harris market is a chain losing to competing retailers and for- survey found that while shoppers still want bargains, they mats? How does this vary by category? What unmet increasingly value speed and convenience when they needs can be addressed to increase store loyalty? choose a place to buy their food. Those surveyed said This ability to quickly and cost-effectively obtain they’d shop at their neighborhood supermarket more answers to fundamental questions regarding customer often if the stores had faster checkout, a quick-stop area behavior allows retailers to better anticipate customer for things such as bread and milk, and a convenient spot needs and to fuel the next generation of their category where shoppers could pick up items for that night’s dinner. management tools. ■ Compliance Limits Can Free Your Company

Amid the tension, headache and expense of Sarbanes-Oxley is a scheme for making the entire enterprise better.

Eric Reyes management strategies

or the last three years, Sarbanes-Oxley (popularly trols. SOX states that auditors and executives must make Fknown as SOX) has been a part of the executive sure internal controls are sound but it offers no detailed playbook. The governance law for corporations states way to accomplish this (in fact, auditors aren’t even that top executives must sign off on reporting docu- allowed to offer advice about it). Essentially what you ments personally. In other words, top management are doing when scrutinizing your internal controls is must swear it has double-checked the books done by making sure the whole company is run well – and by its internal auditors. This is frankly an impossible task mandate. Some areas under examination include mak- at large companies. So, structures and add-ons to ing sure inventory is managed and counted correctly, financial departments have sprouted to help oversee whether people with the right clearance are working accountants and CFOs. with your computer systems, whether goals for upper The verdict thus far is that the systems seem to be management are set too high and are therefore a temp- working. Restatements are up, which means that every- tation for wrongdoing and whether the right officers have one is being extra cautious and is crossing all their letters a way to question large expenses.

Essentially what you are doing when scrutinizing 38 your internal controls is making sure the whole company is run well – and by mandate.

to make sure they are following accounting rules very Once you’ve tackled all these issues it may feel as closely. What that has wrought, however, is cost outlays if you’ve just reconfigured the whole business, top to to all the auditors (something the number crunchers bottom. That’s a benefit but also can seem redundant don’t mind). Auditors got smart about it and upped their because then you have to pay the independent auditor fees – on average by 60 percent. So now you are paying to come in and sign off on all of it. To some executives it’s a lot more to oversee your compliance and not necessari- as if you’re paying double for the same work. In some ly feel you have gained anything but a dodge-a-bullet cases, auditors are doing their checking right on the heels sigh. In fact, the cost this year to publicly traded U.S. of you doing your internal tests. The tension is palpable. companies that satisfy SOX regulations will top out at about $6 billion. Standardization One of the corporate bright spots is that the frame- After three years, though, the landscape has become a work for complying with all the sections of SOX has little more level. Regulators, for example, have worked inspired executives to use some of those strategies com- out some of the vague language of the original law and panywide. Take for example the oversight of internal con- now companies are seeing clarifications in the rules.

Eric Reyes is an editor at Montgomery Media. He has previously edited and written for Business 2.0, The New York Daily News, Amazon.com, Excite.com and The San Francisco Chronicle.

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Compliance Limits Can Free Your Company

Auditors are also being given guidelines so that they rules without consultants were caught off guard when can offer help to companies in certain areas given they couldn’t meet deadlines. In a show of sympathy certain conditions. the Securities Exchange Commission stated that com- Now companies are refining how they do the testing, panies with a market cap of under $75 million didn’t which saves manpower and time. They are also stream- have to turn in their control documents until 2007. But lining the communication with their auditors, designating even with that some companies are bleeding out due who can interface with the auditors and under what to consultant fees.

management strategies There is a real opportunity to streamline and empower your company from the inside out in satisfying Sarbanes-Oxley requirements.

conditions. This has led to a leaner SOX experience for There is a real opportunity to streamline and empower companies. Prioritizing internal testing has proven helpful your company from the inside out in satisfying Sarbanes- as well – inspecting only the top-selling items with the Oxley requirements. CEOs all issued a collective groan nth-degree of detail and then just doing sample tests on when the law appeared on the horizon. Many companies less important products. conformed so begrudgingly that they still can’t catch up. Some companies have gone so far as to lift the The smarter companies used the provisions of the law veil even more by using the Web to trade information to bolster their returns and slim down their operations. between auditors and managers. This made it easier And for the most part it is working. Ask yourself again in and speedier for internal compliance people within another three years if you aren’t better off. ■ the company to gain access to audit sheets from anywhere. Another thing executives should consider is to 40 prepare more officers and managers for compliance duties instead of fewer. Spreading the responsibility The Compliance Mini-Industry around takes the pressure off the few. The Sarbanes-Oxley law is supposed to benefit your company. The law is in place to thwart corporate Manager’s Special fraud and criminal financial wrongdoing inside Executives overseeing this often-challenging task can your company and yet you are feeling the pain. The companies who seem to have really benefited rally company spirit by designating leadership roles to the most are the many auditing firms because they employees handling compliance, which boosts their must be employed to oversee and sign off on your morale. A lift can also come from mapping out worst- accounting and internal control modifications. You might say a whole mini-industry (some would say case scenarios and allowing your compliance managers cabal) has emerged in the public company sector: to figure out best practices. This, in many ways, can weave the risk consultant. compliance awareness throughout every level of the Many of these fairly small businesses are doing very well. While most are private companies, the company and inject a sense of responsibility into the smirk on their faces is unmistakable. Some of the entire workforce. public firms are reporting a 50 percent swell in Even with the attitude, help and scrutiny some revenue. The average large company spent about $8 million last year on SOX matters, not accounting companies just can’t meet the strictures. Some com- for audit fees. However, as corporations move into panies are even going private rather than deal with year four of SOX, and they get into the groove of SOX at all. Employees at some companies are near reporting and oversight, those companies are expected to spend nearly 50 percent less on SOX- mutinous – they say they can’t balance their daily related expenses than they did in the last few years. duties with SOX-related obligations. Some smaller There is a light at the end of the tunnel. companies that thought they could satisfy all the SOX Chapter 3

ion, but whether you know do with the information. what to anufacturing floorsanufacturing by themselves don’t run all progress. in Slimming work a and are always down your processes and trimming your costs are t duc Dashboard Dashboard? to or Not

eping your inventory and misunderstood is a subtle lean but available art these ith software outsourcing and so it may be better available, quality your keep to Out With the Sold, the NewOut With in With A Checklist Maintaining Quality for Control Don’t Discount Assets People To A Supply Chain Without a Weak Link a Weak Chain Without A Supply Ke you think about your stock. the way altering days that involves control close to the vest. to control close find it difficult your employees If you find it difficult managing your employees, managing your company. is not whether you should useThe question dashboarding software track to pro Inventory cut to driven way replenishment by actual demand can be the ultimate costs, streamline and stay ahead manufacturing of competition. W

chniques and software facilitate to change. 54 48 52 46 42 M Manufacturing always huge action items. Knowing huge action how control of your take to always quality maintain chain, supply your workforce keep control, dexterous and preserve a low-stock mandate are the massive tasks at hand. The good news is that there are countless te A Supply Chain Without A Weak Link

Inventory replenishment driven by actual demand can be the ultimate way to cut costs, streamline manufacturing and stay ahead of competition. manufacturing

Eric Reyes

here are thousands of books published in the United in designing new products or in tracking the effect of TStates every year. The big box stores may just order promotions. How long was it before everyone had their one for each of their stores. If someone comes in and buys own version on the market of those paper-thin breath it in, say, the Richmond, Va., store, another copy won’t mint squares? For some companies it was as long as make it back on the shelf until another buyer comes in eight months – that’s from drafting table or lab to con- and special orders it. sumer shelves. This antiquated way of replenishing products is only With the help of consumer-driven supply chain soft- one of book publishing’s many fumbles when it comes to ware, the company is alerted when there’s a dip in your supply chain. But it offers a glimpse into how consumer mouthwash, for example. Then you can investigate products and retail can leverage customer demand to immediately why this is and, therefore, discover that a

The demand-driven supply chain relies on two key enablers: process rethinking and software to help speed up the processes. 42

streamline a supply chain that almost always has many new product is cutting into your product’s selling power. disparate parts. If your processes are streamlined, the time it takes to This notion of the consumer-driven supply chain, get your version of the new product on the shelves is sometimes called the demand-driven supply chain, relies much shorter, especially if the processes include upon two key enablers: process rethinking and software to dated methods to communicate with your suppliers so help speed up the processes. that building the product and shipping it isn’t held up because the supplier wasn’t in the loop about how many No More Forecasting of part X you needed. It wasn’t long ago that the United States could flex its manufacturing power through forecasting. And there Into the Fast Track were plenty of models and nascent software to help Tracking inventory can now be segmented by individual companies with this. There was a sense of advance plan- store. If it is bottled water or batteries that spike in Florida ning for every product – no matter what the volume. during a hurricane, the bullwhip can be managed intelli- Now, there is a new evolution in the form of business that gently. In the old forecasting model, the jump in water can be driven by demand. sales would create a deluge of ordering by the time it got A big brand manufacturer can’t afford to be slow back to the warehouse. Instead of putting enough on the with its supply chain. Not just in restocking shelves, but shelf to help hurricane victims that week, the retail distri-

Eric Reyes is an editor at Montgomery Media. He has previously edited and written for Business 2.0, The New York Daily News, Amazon.com, Excite.com and The San Francisco Chronicle. Consumer Goods & Retail Report bution center places an order with the bottler for more; en model you can build a forecast based on similar prod- the bottler can’t do it for two weeks and then runs out of ucts. Instead of waiting until the end of the month to see manufacturing the actual bottles. Now two months go by before trucks results, line-of-business officers can see daily results and roll. The final twist of the knife is that the forecast will call respond accordingly. for a ramp-up the same time next year regardless of the The benefits of the consumer-driven network extend weather. In the consumer-driven model, the supply chain to everyone. The retailers are very pleased because

Shortages may hurt the brand’s bottom line, but it hurts the retailer more. If they don’t have the product, they question the worthiness of your company and their loyalty erodes. network knows in what stores the demand is, knows branded products that sell are on the shelf when they what size bottles they usually stock and cross-checks the are needed. Suppliers look good because they have a demand against ongoing promotions. When it sees there fast conduit to get the parts to the manufacturers on time are no promotions, an exception is kicked out so that it and exactly when they are needed. The manufacturer can won’t repeat next year. customize their processes and take complete control of Shortages may hurt the brand’s bottom line, but it hurts the pipeline, avoiding the obstacles of some out-of-the- the retailer more. If they don’t have the product, they ques- box solutions. The software makers benefit because they tion the worthiness of your company and their loyalty see how effective a demand-driven supply chain network erodes. If there is someone you want behind your products, can be and how to keep improving it. it’s the retailer. In the demand-driven model, retailers and even suppliers don’t have to learn a thing – they don’t deal What Needs to Change with any new software or levels of new management or The keys to utilizing a consumer-driven supply network have to be trained to do something differently. rest with mandating what needs to change in the work 43 The customer-driven model also means more new culture as well as changing how metrics are regarded – products can come down the same pipeline. Most com- that responsibility for parts of the chain extend to the panies hit seven turns per year to change packaging. It whole operation. If a portion of compensation, say, is can’t necessarily be done with the greatest efficiency in based on what the consumer does, then every point of the old model – you throw too much away or end up late the chain benefits. Results extend over a longer period of to market. It could be that your promotion doesn’t work time and, of course, that means more product gets sold. and you have to redesign something; or your competitor When you replace inventory with information about the just released something unexpected. In the demand-driv- inventory, the supply network becomes synchronized – that means short lead times, more new product turnaround and better product design in the long run. Line of business sees: A supply network that is synchronized eliminates the “six blind men syndrome,” the old saw where six blind ■ When demand spikes ■ Demand by region and by store men each have to describe a portion of an animal but ■ Whether promotions drive demand can’t figure out what it is because, well, they can’t see – ■ Whether exceptions drive demand they can only feel out their segment. It is another way of ■ Whether suppliers are ready to fill orders ■ Whether the competition is eroding your sales breaking down the silos of business and manufacturing processes – in other words, making the blind see. ■ Cutting Out-of-Stocks, Inventory And Logistics Cost via Response To Real-Time Consumer Demand

s we all know, the best forecast is still nothing more The CDSN doesn’t eliminate the forecast, but rather than an educated guess, a road map that tells you starts with a plan, then continuously refines it based on

Solution Provider : Case Study A where you’re trying to go, but nothing about current traf- consumer traffic and sales, as well as retailer needs. It fic conditions. And the frequency with which consumer integrates business practices, process capabilities, “traffic” confounds the forecasters is evident in today’s information and analytics that sense and respond high rates of out-of-stocks and inventory. Working with to real-time point-of-sale data across a network of SAP, Procter & Gamble aims to revolutionize its supply suppliers, customers and trading partners. chain by enabling consumer demand to drive fulfillment. The goal: to extend visibility and collapse How good are you at predicting store traffic and response time, resulting in better, faster product innova- consumer takeaway? tion and other benefits for retailers and consumers. The truth is in the numbers. Today, even the best CPG What’s required is use of POS data – not in the aggre- supply chain performers still suffer out-of-stocks averaging gate, as CPG companies do today to augment their fore- 10 percent (and as much as 20 percent on promotions) – casts – but to provide a very sharp, clear picture of what’s yet on the whole, they’re still sitting on 74 days of inventory. going on now. In effect, it’s like picking up one’s head To Procter & Gamble, this situation is no longer from a general map of the United States, turning the acceptable. By 2008, P&G aims to: headlights on and looking forward through your wind- ■ Cut inventory and out-of-stocks in the field; shield: Now you can see the obstacles in front of you; ■ Greatly improve response time from consumer you know what’s happening and what to do about it. purchase to replenishment; and How does a consumer-driven or demand-driven ■ Continue to reduce logistics costs. supply network (DDSN) differ from VMI, CRP, CPFR and other industry attempts to improve the replen- How? By becoming a consumer-driven supply net- ishment process? It’s different because the latter are work (CDSN). Unlike today’s forecast-driven supply primarily forecast-based, while DDSN is based on what chain, P&G’s CDSN starts with the consumer. The act of really happens at the store shelf. Today, many CPG consumer product purchase triggers immediate, real- companies, if not most, are still doing their monthly plan- time movement of information back up the entire supply ning based on forecasts. Typically, they then must wait for network, from store to distribution centers to plant, and the end of the month to find out what their monthly sales even back to raw materials suppliers. were and how closely they matched the forecast; take

P&G: Teaming Up With SAP on CDSN

Not Buying and Selling Software; Instead, Partnering to Build a Solution for the Industry Consumer products leader Procter & Gamble is working with SAP, redesigning its systems and realigning the culture of its product supply organization to become a customer-driven system. P&G is changing its key business processes to make the demand-driven supply network a core competency – enabling output and logistics to be propelled by information systems that communicate in nearly real time what products consumers are actually buying. “Our goal at Procter & Gamble has been to build a demand-driven supply chain that delivers the product at the right time, the right place and for the right price,” says Keith Harrison, P&G’s global product supply officer. “SAP has been instrumental in our efforts to deliver such a demand-driven supply network. It has been a key partner, helping us to establish a global business backbone at P&G over the last decade.” Says Patrick Arlequeeuw, P&G vice president, consumer-driven supply network implementation, “We consider our supply chain projects to be core to how we will continue to grow the P&G business. At P&G, all our efforts come Solution Provider : Case Study another month to go through a decision cycle; then apply the adjustment to the forecast for the following month.

P&G and SAP: Creating the Demand- SAP for Consumer Products is an industry Driven Supply Network solution combining mySAP™ Business Suite In essence, then, the way most CPG companies operate solutions with tailored functionality to meet the specific needs of companies in diverse today, it can take as long as 90 days for companies doing industry subsegments, including food and monthly sales and operations planning to respond to beverage, home and personal care, consumer electronics, durable goods and a change in demand. P&G wants a process that is much apparel and footwear. The industry solution tighter, one that receives a real-time demand signal – offers best practices for demand-driven supply networks, efficient product life cycle whether POS or a data stream not yet envisioned – and management and improved customer and compares this demand to the forecast. Then, it responds supplier relationship management, delivering a lower total cost of ownership by offering with an immediate change in replenishment planning. proven SAP® applications. Based on the SAP The result is, in effect, a tight chassis. What giant NetWeaver™ platform, SAP for Consumer Products allows for seamless integration of P&G is starting to do is turn itself into a sports car; business processes for category manage- for all its global size, it will be able to turn on a dime, ment, trade promotion management and new product development and introduction. responding quickly. To achieve this, demand information needs to per- Henning Kagerman, Chief Executive Officer meate the whole organization. P&G chose to work with Shai Agassi, Board Member SAP because of its integrated solutions for every aspect Léo Apotheker, Board Member of CPG company operations, from warehouse to manu- Werner Brandt, Chief Financial Officer facturing to finance. William R. (Bill) McDermott, CEO and How does a CPG company begin to turn itself into a President of SAP America, Inc. DDSN enterprise? Keep in mind that DDSN is a journey, Corporate Headquarters 3999 West Chester Pike different for each organization. Today, smart companies are Newtown Square, PA 19073 already moving in the DDSN direction, beginning with a Phone 610.661.1000 www.sap.com tightening of their operations planning process. Companies need to start by making sure they have the ability to execute Business Contact Christopher Foti well, to take an order quickly, to know how much inventory Solution Principal they have, to be able to get that shipment out to the ware- Phone 603.888.7764 [email protected] house and then out quickly to the customer. Only then can one move on to better sales and operations planning. see – days before their retail customers order – what The next step is, in effect, to turn on the headlights they’re going to need to deliver. Then, they’ll at last have and begin to gain real-time visibility. Then, companies the capability required to save large sums of money, vast- can start using this visibility to change the way they ly improve market share and deliver new value to retail- operate. No longer pinned to a forecast, they’ll be able to ers and consumers. ■

down to what we call ‘the first and second moments of truth’ – we need to win the value equation every time, first at the store when consumers choose our product, and then in the home when they use it.” P&G’s approach to its supply network, Arlequeeuw stresses, starts with a simple promise: delivering the right value to consumers. P&G is designing products from the shelf back, and collaborating with retailers and suppliers to create responsive supply solutions. In today’s environment, in which consumers now take for granted a wide, rapidly evolving choice of products at ever-more-competitive prices, P&G has found in SAP a company willing to work together on innovative systems designed to achieve breakthrough goals. Rather than trying to sell software to P&G, SAP has been working hand in hand to develop true, tailored solutions.The consumer-driven supply network journey is perhaps the most ambitious, and the most potentially rewarding. “P&G and SAP really work like partners,” Arlequeeuw says. “Together, we’re developing something that will change our business, and perhaps the industry, for the better.” A Checklist for Maintaining Quality Control

With software and outsourcing so available, it may be better to keep your quality control close to the vest. manufacturing

Eric Reyes

ompanies driven to fill orders and restock shelves ity factors. And it is also then that you can evaluate how Cdo so now with the help of all the latest software these tests can be executed – via software, by human and motivated thought leadership. And even if they call inspection, by laboratory or a combination of all of these. up the wind like wizards to help shape the supply chain, There are many so-called out-of-the-box software they still can’t get the product to the shelves fast enough if packages available that can evaluate individual parts and the products themselves aren’t being made fast enough. some that can measure for stress and related flaws. There More accurately stated, the products can’t move out are also interactive assessment tools – in the form of soft- the door if quality assurances are out of step with manu- ware games – that can help you estimate what kind of facturing. It’s a shiver up the manufacturing chain that no quality control systems you should have. Some compa- executive wants to examine: quality control bottlenecks nies have outsourced quality control while others have that ripple all along the manufacturing floor and slow the reasoned it is too important a step to leave to consultants. actual execution of the product. Grocer H.E. Butt, for example, opened a 13,500-square- Management may think of quality control last. Yet foot quality assurance lab right next to its headquarters in quality control aims are in many ways a snapshot of a San Antonio so it could keep a close watch on the ground company’s mission in miniature. As many companies beef and produce that goes to its 300 stores. embrace trends in management-think (Six Sigma, BPM), Finding the right technical resolution can be a good deal 46 the same tenets spill over to the manufacturing floor: harder than simply choosing a software package. The soft- ■ Expect change: Assume the worst; ware must be able to fit with company processes and pro- ■ Small steps: Change things a little at a time; cedures and be proven to actually shrink time, cost and ■ Use data: Look for the hard evidence before deciding labor. Software that follows a degree of standards and is anything; and interoperable with your overall IT is preferred. This is why ■ Constant evaluation: If change works, widen the effort. most companies run pilots before they spend tens of thousands or even millions of dollars on complete packages. Evaluating Be clear on what if any work-arounds must be configured Most quality control systems (personnel or software) must for your internal processes and make sure line of business answer a set of questions before a product is determined fit gets ultimate control. for store shelves. Many of them have to do with reliability – how long will the product perform to 100 percent of its Going Global designed function? Within that question there are many ele- Since more and more of your products are manufactured ments: How likely is it that the product will do what it was all over the globe and serve customers from all over the designed to do again and again? Will the intended function globe, strategies for erecting quality programs must ever “run out”? Is there a degree of failure in the product also take into account worldwide reach. Even if H.E. Butt that is deemed acceptable? How will the product perform decides it wants its quality control plant just across the in different conditions (heat, cold, pressure, abuse)? street, that doesn’t mean you can, too. If, for example, Once these questions are examined, then your compa- the five parts that make up your product are fabricated ny can outline a set of processes that can test these reliabil- in five different countries, you may have no choice but to

Eric Reyes is an editor at Montgomery Media. He has previously edited and written for Business 2.0, The New York Daily News, Amazon.com, Excite.com and The San Francisco Chronicle. Consumer Goods & Retail Report test those parts before they are imported to an assembly without overlaying how an international presence influ- plant. Here are some other quality control factors to add ences operations. Any break in this chain could lead to manufacturing to an international operation: cost overruns quickly if left unchecked. ■ Collaboration: Are your information-sharing systems uniform and are the ways products are Price or Product evaluated the same from region to region and While driving down the cost of manufacture has country to country? spawned many a business philosophy, there is a ■ Preparation: Is the way you train uniform? Do you add clear division of those who believe keeping the price concepts and manufacturing processes regularly to point down will lead to better profitability and those manuals and software? who believe the better-made product will always win. ■ Economics: Do costs and other economic factors in Beyond the design, materials and execution of a given the countries you have a presence in change from product, quality at its most basic is simply, does it work? place to place? Does it do what it is supposed to? Without the invest- ■ Culture: Are you educated about how cultural differ- ment in quality control, value in your product erodes ences will affect performance in countries where you if even anecdotally it is perceived as nonfunctional. If have operations? you sell fresh or packaged food, hygiene products or ■ Legal: Are you aware of all government compliance novelty items, there are health-related dangers to poor issues both from a labor perspective and a tax per- quality control that have litigious ramifications beyond spective in countries where you have operations? customer loss. Speaking from a management perspective, if you are If you operate plants in more than one country and can- implementing new processes or shoring up existing ones, not fully answer each of these questions with confidence, it comes down to a simple set of guidelines: Find the you may need to revisit your quality control methodolo- process before the software; software doesn’t replace gies. Pareto and fishbone charts won’t necessarily pin- management; metrics alone won’t reveal the problem; point problems accurately or map important steps and continue to redefine the process. ■

Management may think of quality control Quality Control Solutions: ■ Software ■ Virtual “games” to assess need last. Yet the aims of ■ Outsource it ■ QA lab located at HQ quality control are in many ways a snap- Do I need software? ■ Run a pilot test first ■ Rethink your processes shot of a company’s ■ Do IT and line of business agree ■ Start small, then widen effort mission in miniature. Don’t Discount People Assets

If you find it difficult managing your employees, your employees find it difficult managing your company. manufacturing

Eric Reyes

hat is most important in your manufacturing versed in dealing with large sums of people who are Wplants? Is it the processes? The machines? Even feeling displaced (those who lost jobs; those who lost in the truly automated manufacturing floor the answer friends and familiar workstations). is clear: the people. They are the glue that holds all the ■ Training: The new paradigm is quickly becoming processes together; they maintain the machines that auto- one of adaptation to market needs or perish. New mate the plant; and they evaluate the product quality and processes and new IT leads to training sessions. In make sure everything is on time. Yet they are mysterious. the 21st-century company, the introduction of new They are hard to read. It is hard to find the talented ones. skills and retraining will happen on a constant cycle. They are hard to keep around when you have a good one. ■ Information: In the new corporate environment, Their payroll is a huge portion of your expenses. full disclosure is the watchword, especially at a time Beyond a human resources department perspective, when so many are keeping their eye on their retire- the people keeping your manufacturing floor busy are a ment packages and other stakes they personally key element to the success of your product. The opinion have in the company. This leads to a deluge of

48 The opinion that all you have to do is pay and train your employees is outmoded.

that all you have to do is pay them and train them is out- employee questions and taxes HR. Are they ready moded. Your people – especially those on a factory floor to meet the challenge? where training is multitiered to reflect safety, machine ■ Cultural change: Now that some companies are skill, quality control steps, lab procedures and paper- experiencing sustained growth, expansion – even work – are always adapting to new situations and states in measured steps – leads to changes in the work of mind every day. culture. If you’ve just built a huge plant on the Most commonly – at least in most plants that aren’t other side of town, it means thousands of people heavy industrial – people must adapt to: must change their commute patterns, where they ■ Automation: If widespread automation leads to cuts eat, who they work with, where they take breaks. in personnel, there is a large personal component These are not small matters. A worker who feels and not just a matter of retraining and realigning jobs. unable to adapt and has no one to go to for help This is why you should have an HR department becomes unproductive. The same cultural shifts

Eric Reyes is an editor at Montgomery Media. He has previously edited and written for Business 2.0, The New York Daily News, Amazon.com, Excite.com and The San Francisco Chronicle. Trust the collaborative supply chain management solution that helps prevent business fires before they burn up your profit. Logility Voyager Solutions™feature powerful performance management capabilities that give you a complete view of global supply chain activities, support a demand-driven supply network, boost perfect orders and allow you to make better-informed decisions that impact both the top and bottom line. www.logility.com 800-762-5207 Best of all, Logility works. Easily with ERP and other SCM systems. Rapidly for implementations and ROI. Efficiently without lots of IT resources. And effectively to drive top-line growth and bottom-line profitability.

Become a supply chain hero with Logility. Request a free CD at www.logility.com/works • 800-762-5207 Don’t Discount People Assets

happen when you partner with a big supplier in ■ Total transparency: In many ways knowledge is another country. power. Being up front about the way a company works ■ New officers: Churn even at the upper levels means in all of its departments is one way to empower the middle management and those below must read the worker. Pride comes from knowing what happens

manufacturing Allowing for adaptation, hiring the best in HR and knowing when to make exceptions are the marks of a good executive.

health of a company in the newest of hires. New man- throughout the company. This goes beyond posting agement must gain the trust of its people. Predicting annual reports on your website. There needs to be an how your people will react and how long they need exclusive conduit where any employee can learn about to get used to the new order is hard. There will be aspects of the company whether it is an intranet, a mini gossip, and there will be a spate of firings. This is reading library or even walking into an HR office (that inevitable but must be handled with grace. means actually locating an HR annex at the work site) ■ Technology: IT is a huge investment, especially soft- and asking for and receiving a copy of materials. ware and maintaining the viability of that software. ■ Orderly messages: The age of the memo is pretty Much like the way employees adapt to a new boss, much gone, but what exactly has replaced it? they also approach new technology with initial dis- Simplifying the company message is only half the trust, then familiarity and, eventually, trust. This also battle. Making sure the message even reaches the can be a slower process than we would like. People, right audience can be a challenge. When only some for the most part, need time to adapt. This is often employees receive company news, the ones who disregarded in the new, lean work environment. don’t will obviously feel less valued. A process for 50 targeting employees will add to their self-esteem – Allowing for adaptation, hiring the best in HR and know- something you can’t underestimate. ing when to make exceptions are the marks of a good ■ Standardized messages: Once the employees have executive. But also knowing how to motivate the people possession of the message in whatever form, are they on your plant floor – beyond profit sharing and generous reading the message? Achieving a standard way of flexible spending accounts – is important. Even a compa- formulating the material will ensure that the message ny with a massive headcount can institute improvement is clear and simply put and therefore more likely to be programs that make sense and be implemented without read, absorbed and learned. taking up too much mindshare: ■ Every employee counts: This is similar to the “open During this time of potential prosperity, the chink in your door policy” where every employee is informed that manufacturing chain should not be your people. If any- upper management can be reached – via email, thing, employees on the factory floor should be regarded intranet and phone. This also can be reinforced if as your customers are – hard to acquire, inexpensive to executives are seen on the floor more often than once satisfy and loyal with incentives. In the new, lean manu- per quarter. The message can be transmitted via facturing floor, you can’t afford to be sending mixed mes- company newsletters, posters, “advertorials” in com- sages or spending too much on training because your pany documents, verbally and at company events. churn is so high. The floor is what you make of it. ■ Every Company Wants to Reach their Target Audience with the Right Message.

Some of them actually do.

ow? Through the use of one of the How does this work? We do all the work. fastest-growing marketing tools – Once you have established your marketing goals Hcustom publishing. we take over. We find and work with the thought leaders in the field – industry gurus, consultants At Montgomery Media, our custom publishing trade groups, analysts and academicians. Whether solutions put you in control of your message your initiatives are broad or narrow, we provide a and who receives it. forum that is flexible and driven by your needs and guidelines. It’s a results-generated marriage Imagine a magazine devoted entirely to your lead- between your marketing objectives and our ing edge technology. Then imagine that it’s glossy, world-class content and distribution. high quality, editorially interesting and read by decision makers. And you control everything about What are you waiting for? To find out how it – when you publish, how often you publish, what you can get more bang for your buck, contact topics to cover, who to target and how it looks. Montgomery Media.

300 Montgomery Street, Suite 1135, San Francisco, CA, 94104 l phone: 415.397.2400 l fax: 415.397.2420 l montgomerymedia.com To Dashboard or Not to Dashboard?

The question is not whether you should use dashboarding software to track production, but whether you know what to do with the information. manufacturing

Eric Reyes

anaging company finances and overseeing nuggets. Viewed as a kind of Big Brother tool to see what Memployees are full-time jobs, and they are jobs areas of the floor are falling behind is a very limited way a single person or even a department of people can’t do of using the power of the dashboard’s raw materials. effectively at even midsize companies, let alone big corpo- With sophisticated dashboards you can survey rations. Increasingly, you must turn to software to help you. results by individual machine on a factory floor. This This isn’t necessarily a bad thing. Neither is it a cure-all. sounds very advantageous but needs to be approached More and more companies are turning to dashboard with a certain analysis. Why is this machine slow? Is it the software to help monitor inventory, factory floor output, operator or the machine? When was the machine last employee performance and aggregated financial results. serviced? How long has the operator been proficient at But as more executives see the immediate benefit – keep- the machine? Where is the machine on the floor and ing tabs on their workforce – many still do not know how does that contribute to its lag? What is the best and the to leverage the raw data fed to them by the minute on worst the machine (and its operator) have ever done? their desktops. Not all of the answers are displayed in the dashboard. To answer some, you may have to do some research. Driving the Enterprise This method of looking under the layers of information Not unlike a dashboard in a car, the interface for a software is going to help get to the root cause. Another example is 52 management tool resembles the gauges and dials we a team that is performing very well – at least according glance at to see how fast we are going, what strain the to the dashboard. If the high output is really due to one or engine is under and whether we have enough gas to get two members of the team, how will you know that unless there. That metaphor translates very well to the company you dig below the surface? executive’s goals: She wants to see how fast the product is being made and sold and whether they have enough sup- Dangers of Dashboards ply and parts to meet benchmarks and shareholder expec- A basic rule of thumb is to actively analyze what the tations. And she can get it at a glance anytime she logs in. feed is sending you. It is a sign of a good manager. In this way dashboards can be also a crutch, showing She doesn’t distrust technology but knows how to unprocessed results without the proper business causali- overlay her business training on a piece of software. ty. Dashboards can show: She is in control. The hazards of trusting the dashboard ■ Revenue; too much are that: ■ Forecasts of company expectations; ■ Raw data is not necessarily going to show cross- ■ Forecasts of economic demand; and financial results; ■ Real-time costs. ■ Dashboards may allow reaction only to the immediate picture and stifle long-term vision; But these very general streams of data must be ■ A Big Brother feeling of distrust can permeate all approached for what they are: raw statistics. In order to workers; and sort though the chaos and find meaning, executives need ■ Reliance on dashboards can distract from customer to be confident enough with the technology to dig for the service and product quality.

Dashboard Benefits

Immediate Dashboard Benefits

Not all of the ■ A Web-based view from anywhere ■ Only the relevant data is shown to you answers are displayed ■ Exceptions can be custom made for you ■ See more or less information ■ Collaborate across the entire company in the dashboard. ■ See results down to individual machine and operator To answer some Long-Term Dashboard Benefits

questions you have to ■ Helps shape company directives ■ Can aid financial departments 53 do some research. ■ Narrows inventory overruns ■ Allows for planning based on hard data

The presence of employee tracking mechanisms to Certain results can be set to alarm when information dips help expose data can also add to the feeling that Big below or above a certain threshold. Brother is watching. There are anecdotes of workers Since most dashboards are essentially browser- “losing” PDAs just so they won’t be tracked from task based they can be retrieved outside corporate firewalls to task. and information can be pretty easily shared between departments and with other collaborators (suppliers or Superior’s Benefits other important decision makers). The data can also be Of course, some of the benefits of utilizing dashboards viewed in summary form so that you aren’t just exposed can help executives make better decisions. With to an overwhelming data stream. Most of the dash- the kind of instant snapshot they reveal, an executive boards can be configured out of the box according to can address specifics instead of generalities when your role or key performance indicators – whether you talking to suppliers, shareholders, consumers and are CEO, head of marketing or factory director. at conferences. While dashboard software can work seamlessly on Most off-the-shelf products feature visual represen- the factory floor, it also works well for financial depart- tations of data that can be customized to a degree. Raw ments, supply chain, loyalty campaigns and in the board data can be color-coded and trends can be aggregated room. Whether you oversee one plant or many, applying in an easy-to-read manner. The interface can be set to your business acumen onto the technology is always the display more data or less data depending on your area. smart play. ■ Out With the Sold, in With the New

Keeping your inventory lean but available is a subtle and misunderstood art these days that involves altering the way you think about your stock. manufacturing

Eric Reyes

nventory management just seems to get harder as you will make you look like an underperforming company. Iturn it more often and as demand seems to fluctuate But the long-term outlook will remain the same even by the minute. Effective inventory administration brings if you take the hit now. If you carry this overstock on together many disparate parts of the floor and the head the books quarter after quarter, the amount of over- office, data systems and forecasts. It’s no wonder so many stock will grow and then when you have to write it off, companies end up with overstock on their sheets when it the results will look that much worse. Also, physically gets to reporting time. A big overage like inventory can’t getting it all out of the warehouse will make space for be classified as anything but. the well-performing products. One reason trying to bring down your inventory levels never seems to go as predicted is because there are Less Is More actually a variety of factors controlling it: demand, lead There are a few crucial decisions to be made regarding time to receive supplies, the true threshold of your manu- operations fine-tuning. Consider whether you can

One reason trying to bring down your inventory levels never seems to go as predicted is 54 because there are actually a variety of factors controlling it.

facturing arm, badly designed supply chains and unpre- change from distributed warehouses to a centralized dictable customer buying patterns. Adding to these model. Now, some companies just simply can’t. The erratic causes are expectations in customer service, centralized model doesn’t require more stock to be how your goods physically get to the stores and com- housed at the various facilities. The duplicate and extra petitive disadvantage. stock required to keep a distributed model running is far The first obvious step toward attacking this problem more than if you kept it in a single distribution point. You is to classify your products (if you haven’t already) into may also find it more convenient to centralize some but the strongest sellers and the weakest sellers. Then cross- not all of your products. Some items just don’t need tight check the items with their inventory records. Do the lead times and can be converted to centralization while worst sellers add up to at least half of your inventory? keeping a majority of items in the distributed model. If so, it is now very clear that you have overstock of the Figuring out lead times for each product you ship items least likely to move. will help determine if you really need to set a consistent The very next step is to get rid of the overstock or scheduling process companywide. Talk to customer out-of-date products – fast. If you are like most compa- stores and you may find that their actual lead times are nies, you don’t want to write off the overstock because it more flexible. Some customers may also agree to receive

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300 Montgomery Street, Suite 1135, San Francisco, CA, 94104 l phone: 415.397.2400 l fax: 415.397.2420 l www.mriresearch.com Out With the Sold, in With the New

shipments in several deliveries instead of one. You to actual demand as possible, look at customer quantities can also think ahead and break down a shipment into and not at total shipments. The overall assumption is you repackaged quantities based on the common desires can’t count on an exact number but you can get closer of your customers. Why wait until they place the order than you probably are now. You can also review how the if you know they always want less than a pallet? data is gathered and see if there is a method that reflects classifying types of orders. Looking Ahead Never discount the effect your people have on the

manufacturing Look beyond just what paper orders come in and scruti- pace and process. Align everyone’s mission. Efficiency nize demand patterns. Hunt for demand spikes and see if is defined in different ways depending on the role of the you can attach them to specific events such as seasons, worker – floor manager, salesperson or warehouse

The best thought to take into this endeavor is that inventory reduction and management is an ongoing process.

holidays and new store launches. Determine what the director. Often their interests and what constitutes one-time spikes are attributed to as well. Is the spike “good work” is defined differently across the enterprise. due to weather? Has your product caught a ride in the The best thought to take into this endeavor is that wake of a competitor’s promotion? Is it related to a inventory reduction and management is an ongoing cultural phenomenon; did a celebrity use the product process. There really is no end. But that’s a good think in some way recently? because you are always seeing results if you strive to This ties in to making sure your forecasting is true. shave off the outstanding bits. Transformation is really 56 Don’t just assume the data is correct. To get the closest alteration writ large. ■

Information Is Not Dangerous

A manager’s mantra on inventory used to be that the tion cycle hits a certain point, but then the supplier bigger, the better. With the Wal-Martization of ends up spending more to house its unordered everything, the health of your company was measured parts. The manufacturer will pick up those costs. by how much stock you had piled high in your ware- So now both manufacturer and supplier are paying houses. Companies kept making products, forecasts be out when neither of them needed to pay a dime if they damned. Because of scale, the consensus figured you’d had just interfaced. recoup on the costs of carrying without blinking an eye. The trend now is to find a way to get at the infor- That mindset has now totally changed and has mation locked away in company databases without now proved to be folly. The more inventory you have, too much effort. All companies have the information – the worse it is. Businesses are trying to put it right. the chore is unlocking it. Then you have to take that According to the Department of Commerce, inventory information and run the forecasts so you know when stocks as a percentage of all domestic products fell your ramp-up in production is going to result in too from about 8 percent to just below 4 percent in the last much stock. And, by all means, make sure your sales- 20 years. And while inventory carrying was about 35 people are entering the sales into the system or your percent in U.S. companies 20 years ago, it fell to about forecasts are worthless. You can even buy out-of-the- 23 percent a decade ago – but then rose to about 25 box software to track the inventory at your partner percent in 2000. What that means is that companies companies as well. went pretty lean between about 1980 and 1992, but Finally, to get leaner doesn’t mean you have to buy haven’t shaved much off in the last 13 years. the most expensive software. You may only need half What seems to have happened is that manufac- of the functions of the standard package to see results. turers and their suppliers have been playing a kind You can probably negotiate this with the vendor before of order fulfillment game of chicken. The manufacturer you commit half a million dollars to a system your peo- won’t take in parts from its supplier until the produc- ple will only use half of the time. Chapter 4 demographic.

arketing has never seemedarketing so important and so inundated with environment dangerous in an messages. it and getting selling Building a brand, o of how to build a brand: Your brand may be an intangible, but it can add may be an intangible, brand o of how build Your to a brand:

ing the Word Out ing the Word tw ing through the clutter Here are some alternative has never been harder.

asuring Brand Value asuring Brand cklist for getting started.cklist for tt tt rt e hard numbers your company financials. to Blog This Brand Blog Me Ge the Thing The Game’s How Build to a Brand Blogs are now had blogs. so Here’s a your brands popular that it might be time ch Cu The old idea of product placement in entertainment is getting a new spin by delivering energetic advertising online gaming, into and reaching a very desirable Knowing and what it adds will how your company’s value to define your brand to earning maximum help you use power. that brand’s Pa advertising that are revving vehicles prime time. up for

hnology allows for some rather ingenious ways to stitch to ways ingenious some rather hnology for allows c 71 66 69 62 58

your marketing messages liveyour marketing into content. Madison Avenue managersand your marketing need a new playbook in the upcoming years compete to with an edge. M Marketing it in front talent audience requires more grit and of the right now than in the past. Advertising just lives no longer on the page consumer is and through the airwaves. The likely now And finally, read than a newspaper. more prone to a blog te How to Build a Brand

Knowing how to define your brand and what it adds to your company’s value will Marketing help you use that brand’s maximum earning power.

David Muir | WPP Keith Newton | Ogilvy

t is said that a good punch comes from the body. To visionary leader in energy issues during a nascent age Ideliver that punch, brands need to generate the full of “green” initiatives? They needed to move beyond 360-degree experience from a powerful brand idea – petroleum to survive. Now they thrive. And they did it an idea that inspires, and indeed sometimes transforms. by tackling tough issues head on and engaging in dia- All good marketers build a range of metrics into their logue with consumers when the rest of the industry report card to measure the subsequent plethora of con- was running for cover. This strategy moved them into tributions to the marketing mix. But in building a brand a financial growth mode. name, sometimes the “business of brands” may be taken a little too much for granted. Building a Brand Is Easy Brands do two things: ‘’We want you to remember our name. That’s why 1. They create strong internal cash flows for businesses we’ve decided to fire gerbils out of this cannon,’’ said by speeding revenue growth and charging a price a spokesperson of a typical ad from the dot-com era. premium on this growth. At that time, many new brands seemed to believe that 2. They create a stock of cash over time, which the busi- simply creating awareness or fame was the key to build- ness can draw on during times of market uncertainty ing a brand. Yet, if the equation was so easy, why did so or increased competitive activity. many fail to last? 58 Most of us are united in striving for some common It is for these reasons that many CEOs charged with ground when we build a brand: differentiation, a com- growing the firm are focusing on the brand as an impor- pelling brand idea, an overriding brand belief, consist- tant lever in achieving their goal. Just ask BP. In 2004, ency in managing the marketing P’s and so on. BP was named one of the 10 most-admired international But all too often missing from the armory – and companies. Who would have predicted that an oil com- marketing dialogue – are harder financial targets for pany could emerge from a brand transformation as a the brand itself. (Frequently in the dot-com mania, it was

40% 40% Home Depot 30% Revenue CAGR 30% Home Depot Morrison Gross Profit CAGR ‘98-’00 20% ‘98-’00 Selfridges Wal-Mart 20% Morrison Sams Body Shop Selfridges 10% Asda Circuit Tesco Petsmart 10% City Tesco Waitrose Kmart Boots Safeway HoF BodyShop John Lewis Safeway HoF Debenhams Boots Sainsbury Kmart -6 -4 -2 2 4 6 8 10 12 Debenhams M&S -6 -4 -20 2 4 6 8 10 12 Sears JCPenney Somerfield 2 Sainsbury -10% Adjusted R = 0.43 Somerfield -10% Adjusted R2 = 0.52 T-Stat = 6.5 T-Stat = 7.6 N = 25 N = 17 -20% BrandZ Voltage -20% BrandZ Voltage 1998 1998

Figure 1: Stronger brands equal stronger revenue growth. Figure 2: Stronger brands equal stronger profitability.

David Muir is CEO of WPP’s The Channel, which brings together WPP’s media and research skills for the benefit of global clients. At Ogilvy he was new business director and group development director at Ogilvy London. Keith Newton is group planning director at Ogilvy. For Young & Rubicam, he was Australasian regional planning director, manager creative strategy worldwide and planning director of the flagship New York office. He joined Ogilvy NY in 2003 to work with global clients like the Coca Cola Company and Kodak. Consumer Goods & Retail Report more of a fundamental failure to link brand-building efforts to a solid business plan.) 15% Tangible

Assets Marketing To succeed, brands need to build equity that delivers 38% Intangible Assets economic returns in two ways: 62% 1. Building brand stock and long-term value to the company’s balance sheet. 85% 2. Contributing to cash flow in its day-to-day operations. Market Value 62%

38% The Brand as Business Time and again brands are treated as “soft” elements of 1982 1992 1998 the marketing mix. They lead valuable lives helping deliver product targets, yet are divorced from, or only remote- Figure 3: Shifting values of assets. ly linked to, hard financial brand goals. Are enough brand managers sufficiently “incentivized” brands tend to have a lower systematic risk as measured to build intangible value on the balance sheet or manage by that company’s stock beta. brand equity to lift margin potential? In other words, do This brief discussion shows how a brand can be meas- you target your brand managers with sales growth but ured on flow measures such as revenue and profitability. It have no measure on the brand value that they have creat- is important, however, to have a stock or asset measure for ed? Many firms that rely on sales growth as their only tar- the brand – in order to ensure that we are not bumping up

Time and again brands are treated as “soft” elements of the marketing mix. … only remotely linked to hard financial brand goals.

59 get for the brand quickly get hooked on the marketing flow measures by using promotional tools that, in the long- equivalent of crack – trade discounts. As a result they term, are inimical to value creation. That is why it is impor- may pass on a business that, on paper, appears to have tant for any marketer and her CEO to ensure that they grown, but at the expense of the brand value. constantly measure the value of that brand. This practice is crazy if we accept that brands create Despite pulling back after recent irrational exuber- value for businesses by the flow of cash generated ance, the market-to-book value of leading companies and the stock of assets that they create. For example, has continued to rise over time. An analysis by Baruch a brand helps beef up the value of cash flow on three Lev of S&P 500 companies demonstrates the radical levels. First, the stronger the brand, the stronger the shift in the balance of tangible and intangible assets revenue growth. In Figure 1 we look at brand vitality (see Figure 3). of U.K. and U.S. retailers as measured by WPP’s Within those intangibles the brand can make a sig- BrandZ and show the connection to revenue growth nificant contribution. The value of the Coca-Cola brand, two years out. for example, is often cited as representing around 60 per- The second way a brand works to build strong cent of the company’s market capitalization. streams of cash flow is by justifying the price premium Building brands with these intangibles in mind can charged. As can be seen from our study of U.K. and reap enormous dividends. “We’re launching new com- U.S. retailers, stronger brands tend to have stronger panies that are 100 percent funded by external investors profitability (see Figure 2). based on the power of the brand,” Virgin’s chief Richard The third way a brand creates value is by reducing Branson has claimed. the systematic risk of these cash flows. A recent study Now you think you have a handle on what the by two academics from the University of Southern brand can do. How do you use the brand to enhance California found that those businesses with valuable your bottom line? ■ Valued by Those Who Most Value Brands

avid Ogilvy founded our New York office in 1948 sheet. We believe a brand is the most important asset

Solution Provider Dwith a staff of one and no clients. Fifty-seven years that a company has. Our responsibility is to help our later, we have grown to be one of the largest, most multi- clients build enduring brands that become part of disciplinary marketing communications networks in the consumers’ lives, inspiring their loyalty and earning world. Ogilvy’s focus on building brand relationships their confidence. continues to drive the evolution of the global communications industry as it exists today. Today, we are active in Brands Are Business Builders virtually every product or service category representing Ogilvy understands that valuable brands equal valuable more than 2,300 clients and the world’s most successful business. brands, including American Express, BP, Cisco, DuPont, Jon Miller and David Muir write in The Business Ford, Gillette, GlaxoSmithKline, IBM, Kimberly-Clark, of Brands, “Research shows that brand strength is Kodak, Mattel, Motorola, Nestlé, Pfizer, SAP and Unilever. correlated to market share – and also that market share Ogilvy develops effective award-winning work at is strongly linked to profitability. Further, brands enable nearly 497 offices in 125 countries through the efforts of market share to become self-reinforcing.” more than 14,000 employees. A brand is not just a label or name for a product We believe in brands. And we are in the brand- or service. In fact, brands that are built to reflect the transformation business. By transforming brands, we differentiating benefits inherent to a specific business transform businesses. We believe in a brand’s tangible model will create value beyond what the product was and real effect on the ability to add value to our every- originally designed to deliver. And driving marketplace day lives. And we believe in the intangible power a value for the brand extends beyond the CMO’s office brand has to drive shareholder value. A brand is much and now includes the CFO along with other leaders more than a goodwill entry on a corporate balance within the organization.

Business Context 360 Tracking Brand Ambition Brand Audit Brand Scan Brand Concept Print Consumer Brand The Development Context Manifesto 360 Funnel Work Workshops Customer ask Briefs Prints T 360 Analytics Brand ReportBrand Card

Cultural Context Summary Document 360 Optimization

Brand Definition Brand Expression

Figure 1: Ogilvy’s 360 Degree Brand StewardshipSM Toolkit Solution Provider To succeed, brands need to build equity that delivers economic returns in two ways: ■ Building brand stock and long-term value to the company’s balance sheet; and ■ Prominently displayed in each office are Contributing to cash flow in its day-to-day David Ogilvy’s words, which define our operations. ultimate purpose: “Only if we build, nourish and develop prosperous brands, only if we have made them more valuable both to At Ogilvy, we believe our role is to partner with our their users and to their owners, may we judge ourselves to be successful.” clients to ensure we can deliver that return together. Shelly Lazarus, Chairman and CEO, Ogilvy & Mather Worldwide 360 Degree Brand Stewardship Tro Piliguian, Chairman, Ogilvy North America 360 Degree Brand StewardshipSM is Ogilvy’s pro- Bill Gray, Co-CEO, Ogilvy North America prietary philosophy to uncover the brand’s core Carla Hendra, Co-CEO, Ogilvy North America essence. Once we understand what is at the heart of the brand’s success, we make better decisions Colin Mitchell, Chief Strategy Officer, Ogilvy North America about how to develop the most effective brand prop- ositions and expressions. Our 360 Degree Brand StewardshipSM approach employs an arsenal of traditional and proprietary tools these form an overarching strategic guide for all 360- to uncover deeper, more actionable insights. We deploy degree communications. these insights to develop big, differentiating brand posi- Some of our most revealing brand insights are generat- tioning, then naming, branding and communicating that ed by Ogilvy’s Discovery Group, a team of strategic plan- positioning in a media-neutral manner. ning experts focused on ethnographic research. They “live” Ogilvy has helped some of the world’s best brands among the most important segments of the target audience establish (or re-establish) leadership through deeply to observe behavior that tells us what matters most, even if integrated thinking, starting with a single compelling they are not self-aware of the impact. brand idea and extending it to every point of contact The second phase (brand expression) is designed between the consumer and the brand. to deliver the most effective marketing communications

“Research shows that brand strength is correlated to market share – and also that market share is strongly linked to profitability. Further, brands enable market share to become self-reinforcing.”

Our track record in brand transformation is unri- strategy across key target segments and channels. valed with brand ideas like Dove’s Campaign for Real The final 360-degree communications plan is scalable: Beauty, IBM’s e-business, OPEN from American Express The time it takes and the investment it requires depend and Beyond Petroleum for BP. entirely on the brand’s needs and available resources. Ogilvy’s 360 Degree Brand StewardshipSM is A key component of our 360-degree communications a dynamic two-part process: brand definition and planning is the brand experience at retail and through brand expression. package design. The first phase (brand definition) reduces the brand Our Brand Integration Group has designed brand proposition to its core essence, known as the BrandPrint, experiences, including packaging and retail environ- and transforms it into vivid and motivating portraits of ments, as a powerful source of brand differentiation the user targets, known as CustomerPrints. Together, and business impact. ■ Measuring Brand Value

Part two of how to build a brand: Your brand may be an intangible, but it can add marketing hard numbers to your company financials.

David Muir | WPP Keith Newton | Ogilvy

he weighting of the criteria that drives intangible value brands contribute a disproportionate amount of the total Twill change according to the categories a brand oper- business value of these enterprises. By our estimates the ates in, but vision, management, reputation, leadership, value of the brands generates between 80 to 90 percent innovation, integrity and customer focus provide just some of the business value. What Corona and Guinness exem- of the umbrellas that can be correlated to such value. And plify is obsessive focus on ensuring that the brand remains shaping brand communications and behaviors that signal relentlessly differentiated, from its wonderful packaging these in the right way is most effective when an inspiring to its delightful communication. By doing this they have “brand idea” provides the organizing principle. created substantial value. Let’s look at BP from the first part of this paper (see page 58). The “Beyond Petroleum” slogan reflects BP’s commit- Enhancing Cash Flow Today ment to reconcile the paradox of a world increasingly Short-term targets have to be delivered. Millward concerned about the environmental and social tradeoffs Brown’s analysis of the BrandZ database (more than resulting from the extraction and consumption of fossil fuels 25,000 brands and 1 million-plus consumers) demon- and the growing demand for energy to power the world’s strates that high-equity brands generate cash flow by economic and lifestyle aspirations. It informs and unifies delivering a greater price premium (see Figure 1). a complex and diverse communications program that touches every 62 1.50 business stream and operating function in the company – all in 1.40 support of BP’s ambitious corporate transformation. 1.30 To objectively value brands,

WPP launched Millward Brown Price Index 1.20 Optimor, which looks to put a High Equity Low Equity financial value on brand activity. In Equity Gap 1.10 a recent study of the global beer – Brand is worth paying more for market we have found that those 1.00 brands that are genuinely distinctive tend to deliver a disproportionate amount of the actual business 0.90 value. Two good examples come to mind from countries as dis- 0.80 11315171921232527293 5 7 9 11 parate as Mexico and Ireland. The % Volume Share Grupo Modelo brand Corona and Figure 1: High-equity brands get a price premium. the Diageo-owned Guinness

The majority of businesses focus on driving the a brand belief – an ideology and point of view about the demand curve by seeking ubiquitous appeal and strive world that provides an enduring anchor and guides the for volume growth from a broader audience. Many cor- brand’s behavior. The more this perspective taps into a Marketing porate cultures seem obsessed with market share (which fundamental human truth the more potent its impact. would be fine if the business model really demanded it). Second, they have brand custodians who acknowledge Interestingly this broadening of relevance is often done at that their brands are their business, not just a marketing the expense of potential margin, as it compromises the marquee. All good brands help products on the every- very nature of the brand’s differentiation. day battleground for revenue and profit. Great brands ■ Y&R’s Brand Asset Valuator tracked over 400 cases truly transcend this and create powerful intangible value in a decade and consistently found that, on average, on the balance sheet. brands that grew their differentiation enjoyed about a 50 percent higher operating margin than those that If we really understand the brand’s business model allowed it to slide. and strive to construct the appropriate equities for the ■ BrandZ has found that highly differentiated brands above, we will have built a brand name of real substance that try to grow their franchise very commonly stand and, hopefully more enduring than the one that relies a 47 percent chance of actually destroying the value on gerbils. ■ of the business. ■ It has also demonstrated that of the factors that drive consumer bonding, the role of price ranges from 66 percent for those with a weak relationship to only 2 percent for those consumers who represent the top fifth. 10 Bonding

The shape of Ogilvy’s loyalty pyramid, for example, provides a good representation of where a brand is heading. 22 Advantage In the very early studies a decade ago, Nokia in the United States was signaling very strong potential with a profile like Figure 2 – which seems much healthier than 24 Performance the shape of Coors Original today, as shown in Figure 3. 63 Uniqueness and clarity are crucial in the endeavor to build a healthy loyalty franchise. There is great danger in lis- 28 Relevance tening slavishly to consumer likes and preferences that will lift perceived relevance but damage this precious goal. Conflict and discomfort can be great allies: As Akio Morita, Sony’s visionary leader, put it, “Our plan is to lead the public 34 Presence … rather than ask them what kind of products they want. The public does not know what is possible, but we do.” Following a differentiated vision rather than con- Figure 2: Nokia’s Loyalty Pyramid sumer-claimed “relevance” is a path more brands should follow to deliver accelerated cash flow, unless the brand’s business model suggests otherwise. <1 Bonding It is said that rules are for the obedience of fools, but being clear about the financial returns we want from our 29 Advantage brand will help dictate how best to build it. While opinions on how to build a brand abound, each organization 43 Performance should be clear about its own judging criteria. For exam- Relevance ple: At the heart of any great brand lies differentiation. As 54 long as the brand is different in a relevant way, tangible Presence differences, distinctive personality and a unique aura will 77 prime selection and yield pricing power. If the delivery and experience are highly regarded then loyalty will fol- Figure 3: Coors’ Loyalty Pyramid low. Great brands have two more traits: First, they have Hot Topic for Retailers: Shaping the Customer Experience

What is MRM? Why are Marketers The Solution – Marketing Investing in This Software? Resource Management Enter Marketing Resource Management. MRM has The Good News – Marketing, emerged to address marketers’ requirements for better The Steward of the Brand planning, budgeting, process management and tracking Top marketers are being asked to drive strategic corpo- of marketing initiatives – ultimately streamlining process- Solution Provider : Case Study rate initiatives – in particular, CEOs are looking to es and freeing up marketers to spend more time on strat- marketing to take the reins and drive the customer egy and understanding customer needs. MRM provides experience. Nowhere is this more pronounced than in a collaborative framework for marketers to manage their retail. And who better to do so database marketing projects than database marketers, and easily share appropriate who spend their careers try- details with other departments ing to understand what moti- and partners. MRM provides vates customer behavior and capabilities for planning proj- how to excite and motivate ect workflows, assigning tasks customers? Leading retailers and resources and then track- realize that branding is more ing project progress. It enables than messaging and imagery organizations to establish – it’s the sum of all the experi- standard, repeatable process- ences, good and bad, that a es for developing campaign customer has with a company. As the steward of logic and creative materials, automating approvals, the brand, marketing must become involved in maintaining audit trails and making it easy to reuse suc- every facet of the business to ensure the right cessful programs. experience is being delivered to each customer. There are three key capabilities of MRM: ■ Operations management for defining plans, manag- The Opportunity – Providing a ing project workflows and capturing results; Consistent Customer Experience ■ Financial management for tracking budgets and Marketing organizations around the globe spend expenses; and upwards of $239 billion on direct and Internet marketing ■ Digital asset management, which stores all market- each year. Yet most still manage these projects via a ing assets in a secure, central location. hodgepodge of spreadsheets, text documents, email and a myriad of other disconnected applications. Imagine Additional capabilities may exist to address specific managing and planning these efforts through a single marketing program requirements (event planning, for integrated marketing application! As marketing gets example) or specific industry needs. Some functionality involved in shaping customer experiences across all is geared toward database marketing needs, while other touch points, there is more demand than ever for high- capabilities are targeted at brand marketing require- quality, targeted deliverables, and there is greater ments. In general, however, using the three key MRM complexity in managing the myriad of details involved capabilities, marketing organizations can gain significant in planning, developing and delivering this material. operational improvements and achieve higher ROI – This ever-increasing communication “velocity” can put all without imposing rigid processes that stifle creativity a strain on the entire marketing organization. Managers, and productivity. analysts, creative team members and production staff struggle to keep pace using disconnected applications The Benefits of MRM and processes. Organizations need to streamline their The benefits of MRM for marketers fall into four general marketing operations in order to keep up and drive a categories: improved velocity; greater visibility; improved consistent brand experience. capacity; and enhanced compliance. Solution Provider : Case Study

Improved Velocity MRM increases speed to market while managing marketing complexity. By capturing project manage- Unica Corporation is a leading global provider ment best practices and establishing standard processes of enterprise marketing management (EMM) software designed to increase revenues and for campaign logic, creative development, program improve efficiency and measurability of mar- execution and analysis activities, organizations that adopt keting operations. Approximately 300 companies use Unica’s Affinium software including MRM solutions streamline activities and eliminate Capital One, Choice Hotels, Comcast, Lands’ unnecessary delays and missed deadlines. MRM solu- End, Nordstrom and Reader’s Digest. tions can also eliminate bottlenecks by streamlining Yuchun Lee, Co-founder and CEO approval processes. And by implementing standard Carol Meyers, Vice President of Marketing project templates tailored for your organization, MRM Eric Schnadig, Vice President of Worldwide Sales offers improved coordination across projects and Worldwide Headquarters resources. By using these capabilities to streamline Reservoir Place North 170 Tracer Lane processes, your organization can save money that is Waltham, MA 02451-1379 often lost through rush fees, rework, compliance fines Phone 781.839.8000 Fax 781.890.0012 and duplication of effort. [email protected] www.unica.com

Greater Visibility Business Contact MRM solutions can provide all project stakeholders with Jennifer Sullivan Director, Marketing & Inside Sales a clear, up-to-date view of current activities, project status, Phone 781.839.8099 budgets, resource availability and program perform- [email protected] ance. Organizations can consistently measure and track programs throughout the entire program life cycle, allow- pay for themselves according to early adopters and ing teams to identify issues and opportunities faster and industry analysts alike. to determine true marketing ROI. Centralized calendar- ing helps marketers to optimize budgets, improve Results – Time and Savings resource utilization and synchronize market activities. According to Gartner Inc., a leading IT analyst firm, one company using MRM reduced creative approval processes Improved Capacity from 14 weeks to two, while another corporation saved over MRM solutions can also increase an organization’s $200,000 per brand through improved asset reuse. Unica capacity to design, develop, execute and analyze a Corporation’s customers have reported payback in six to greater number of marketing programs. As previously nine months and project cycle time decreases of 50 percent mentioned, MRM offerings help streamline project or more. MRM is just one component of the emerging development and approval processes. By leveraging a enterprise marketing management (EMM) software cate- central project repository containing best practices and gory and is increasingly purchased as part of a suite of prior program templates, team members can get new software designed to increase the productivity, precision projects started quickly and easily. Digital asset manage- and accountability of marketing. In fact, Gartner says that ment capabilities allow marketers to reuse approved through 2010, enterprises that successfully deploy EMM materials such as creative briefs, graphics, direct mail will grow their businesses by more than 20 percent.[1] pieces, ad copy and more – quickly and easily. Conclusion Enhanced Compliance Marketing is one of the only remaining functions within com- With ever-changing privacy rules, regulations and cus- panies that has not had its own suite of integrated software tomer preferences, marketers are challenged like never to drive greater efficiency, effectiveness and measurability. before in how they can interact with customers. An MRM Companies around the world have invested in software solution’s standard approval processes, collaborative for finance (ERP), sales force automation and call center mark up with automatic revision logs, as well as built-in automation, supply chain and manufacturing and nearly version control and audit trails, ensure what goes out has every other department. The time for a marketing suite of been approved and tracked. Best of all, MRM solutions software that includes MRM capabilities has arrived! ■ Getting the Word Out

Cutting through the clutter has never been harder. Here are some alternative Marketing advertising vehicles that are revving up for prime time.

Diane Anderson

hile most consumer product goods and retail Likewise, in 2000 Half.com got a city in Oregon to Wcompanies spend the bulk of their ad dollars in rename itself after the company. Its cost was donating traditional Madison Avenue shops or hot boutiques such some 20 computers to the local elementary school. as Crispin Porter Bogusky in Miami, the era of the “alter- The low-cost publicity stunt generated lots of media native ad” is showing signs of life. Ten years ago the ad attention in Time, The Wall Street Journal and The banner was going to give traditional ads a run for their New York Times. Headlines heralded the first dot-com money. That idea seemed to crash along with the dot- city and increased traffic to the online retailer of used coms. Expensive TV spots might not be worth as much goods. Soon after, eBay acquired Half.com for a cool as they once were. Prime-time ads still cost a fortune, and $300 million. Now, Dish is similarly offering free service the current ad clutter is enough to make anyone reach to any town that will rename itself Dish. While these for the remote. Many consumers love their digital video “buzz marketing” moves might seem extreme, they recorders – they are recording their favorite television show how hard it is to cut through the clutter. And they programs and skipping right past the commercials. show that you’ve got to think about generating buzz in Competition for consumers’ attention is fiercer than ever. unusual ways.

66 You can decide to break through the ad glut by using technology or going guerilla – the beauty in today’s ad environment are the choices at hand.

Media is now available in nearly every commonly used Yes, There Are Questions mobile device – but what comes with that is an audience If you are considering word-of-mouth advertising, here wilting from message overload. are some questions to ask yourself: It’s a dilemma. But there are some innovative ways of ■ Who are my customers? talking to your target and getting the word out about your ■ How old are they? product or service. The watch word seems to be “fun” – ad ■ What kind of media do they use? alternatives that are more likely to appeal to your customer ■ Where do they spend their free time? and resonate positively with them. And so sometimes ■ What beliefs do they have? necessity is the mother of invention. Take Golden Palace, ■ What values do they hold? which reportedly paid a woman $10,000 to tattoo its Web address on her forehead. This body-art approach is cer- Mark Hughes, the brain behind the Half.com coup and tainly unconventional. You might not need to pay someone author of Buzz Marketing, insists that word-of-mouth to permanently mark their skin with your identity, but marketing is much more valuable than traditional adver- Golden Palace did garner a lot of attention for its boldness. tising. The key to buzz marketing is touching certain hot

Diane Anderson has been writing and editing for various publications for the past decade. She is senior reporter at Brandweek magazine. Consumer Goods & Retail Report buttons to get conversations started. You need to give now even “terrorist marketing,” this tactic works best if you people something to talk about. He says the buttons know your customers’ lifestyle and can approach them encompass the taboo (don’t squeeze the Charmin), the where they spend their leisure time. Are they mall rats? Marketing outrageous, the hilarious, the unusual, the remarkable Then catch the shopping creature in its natural habitat and and revealed and hidden secrets. canvass retail centers. Sports fans? Have street teams In the more traditional realm, online advertising is an descend on stadiums. Guerilla marketers often appear as extremely measurable form. You can track what creative the target’s peer – an 18- to 34-year-old in hip clothing and elements work best, which media partners deliver the speaking in natural slang. They might be touting a cool best leads and which leads turn into customers. That’s website or event that may have good live music. why online ads are actually growing and are not dead, Outdoor advertising shouldn’t be underestimated as they seemed in 2000. Internet advertising revenue in either. Wild postings, such as you’d see plastered on a the United States totaled more than $9.6 billion for the boarded-up building, are generally effective and aren’t as full year 2004, an increase of nearly 33 percent over 2003, expensive as other forms of advertising. Mobile market- and that revenue exceeded the previous annual record ing is another way that marketers are reaching an ever- of $8.1 billion in 2000 by 19 percent. A few smart compa- younger and on-the-go demographic. This desirable nies are taking advantage of the medium. Vonage, a VoIP group generally travels with their cell phones and doesn’t company, has built its brand by spending the majority of mind receiving messages that are either entertaining or its marketing dollars online. have some promo attached to them. A free giveaway, like a ringtone or video game, is one way to entice consumers to interact with your brand. Your Arsenal of Ad Alternatives Nestlé reached out to young people by putting contest key codes on bottles of chocolate milk. Instead of driving ■ Contests played via cell phones and PDAs ■ Name a town after your company traffic to a website, the contest had people keying codes ■ Video/audio ads pushed to cell phones into their cell phones to see if they had won. You get bottled ■ Corporate blogs drinks at the corner store and you’re nowhere near a com- ■ Ads in video game environments ■ Online ads puter, but your cell phone is likely to be in your pocket. ■ Buzz marketing Gaming the System 67 A few companies are even experimenting with Bluetooth I Read the Blog Today, Oh Boy technology that senses when other Bluetooth-enabled If your ideal customer is online at all, then you can bet they phones are at a certain location. British band Coldplay are exposed to Web logs, or blogs. Even if you think you promoted its album “X&Y” by beaming interviews and aren’t reaching out to geeks, you might want to reconsider music clips to people in London’s Heathrow airport. blogs since approximately 50 million Americans visited Video game advertising is another novel form. Sixty blogs during the first quarter of 2005. So blogs aren’t just percent of 18- to 34-year-old males play video games for geeks anymore. Consumers are turning to blogs for regularly, and Nielsen recently reported that the same unbiased opinions and real dialogue. That’s what scares demographic is spending 5 percent less time watching many marketing professionals – blogs seem like the Wild TV. Advertisers have already caught on, spending $16 West – an unregulated, unpredictable sphere where your million last year on video game advertising – mostly brand can get away from you. One solution to that is to hire product placements and something called “dynamic company bloggers, whose full-time job is just to craft cor- advertising,” where ads in gaming environments can porate blogs. Digital music company Sonos, for example, rotate according to time, duration or audience (see page embraced the customer community at places such as elec- 69). Massive Incorporated, for example, is one of the tronic device review blog Engadget.com and by creating its networks experimenting with in-game advertisements, own forum where customers can ask questions, complain and brands such as GM, Coca-Cola and Paramount and offer suggestions. Blogs provide a two-way communi- Pictures are testing the waters. cation channel, so you can deliver your message and pro- You can decide to break through the ad glut by using motions as well as hear what your customers really think technology or going “guerilla” – the beauty in today’s and want. This feedback can be invaluable. ad environment is the variety of choices at hand. Stay Street marketing is another great way to affordably talk focused on the objective and be mindful of your audience. with your audience. Often called guerilla marketing, and As you know, another channel is only one click away. ■ Making Smarter Marketing Decisions

Fair Isaac (NYSE:FIC) is the world leader in oday retailers are leveraging a vast array of precision decision management solutions driven by Tmarketing technologies and analytic capabilities to advanced analytics.

Solution Provider grow customer value and overall profitability. At the Tom Grudnowski, President and CEO

same time, in their quest to establish “relationships” with Joe Paulsen, Vice President, their end customers, a growing number of consumer- Precision Marketing Group branded goods companies are also jumping into the Jane Johnson, Vice President, Retail Marketing Solutions game, engaging in direct-to-consumer marketing pro- Michael Bragg, Vice President, Consumer grams – with varying degrees of success. Branded Goods Marketing Solutions Gaining a deep understanding of end-customer wants, Fair Isaac Corporation needs and situations by narrowly defined segments as a 901 Marquette Ave., Ste. 3200 means to communicate with them in a context-sensitive Minneapolis, MN 55402 Toll-free 877.643.4260 fashion can obviously yield enormous value. However, [email protected] rather than create a robust database asset that can serve www.fairisaac.com/precisionmarketing as the basis for engendering customer relationships while Business Contact gleaning valuable market insights, companies often end Jeff Zabin, Director, Marketing Strategy Phone 847.328.4795 up amassing little more than a random collection of names [email protected] and email addresses that, on its own, fails to deliver any real competitive advantage. analytics to segment customer populations for targeted Fortunately, a new breed of marketing solution is now actions, determine the most profitable and relevant com- gathering steam, allowing companies of all stripes to max- munication or offer recommendations in every situation imize the value of their data-driven marketing activities. In and make consistent decisions across all customer touch fact, some of the world’s largest marketers and most pre- points. Suddenly, companies are able to automate their eminent brands are already adopting it as the core efforts to capture customer data, determine the best enabler of their direct-to-consumer marketing programs. matches among prospects, offerings and channels and The solution leverages an integrated suite of applica- deliver the messages and offers that are sure to elicit the tions, including a dynamic survey engine, campaign and most favorable results – often in real time. channel management software and a customer relationship repository, which delivers decisions to management sys- Introducing Marketing tems and customer touch points based on a set of business Decision Manager rules and analytics. As such, the backbone of this integrated It’s no surprise that Fair Isaac is leading the way in the nas- suite of applications is a rules-based decisioning engine. cent marketing decision management (MDM) solutions Decision management has made a big splash in market. Robert Blumstein, research director, CRM recent years as more and more companies realize the Analytics and Marketing Applications at IDC, a leading need to deploy applications that deliver precise and consis- market research firm that in 2005 ranked Fair Isaac as one tent decisions based on rules and analytics. These applica- of the top five revenue leaders in the marketing automation tions give business managers increased control and applications market, noted that the company has a “long visibility over the factors used in each business decision. history of delivering actionable analytics that drive signifi- A business rule can be defined, modified and reused cant marketing improvement.” as a corporate asset. And because decision management Enabled by the leading rules engine, and deploying a applications provide a closed-loop testing environment, flexible Web services architecture, Fair Isaac’s MDM solu- the results can feed the data repositories used for model tion – aptly called Marketing Decision Manager – allows and strategy development on an ongoing basis, creating marketing managers to take full control of their consumer a recursive learning cycle. Analytics improve rules-driven interactions across all channels and customer touch points. results by allowing businesses to make decisions better – As a result, companies can catapult their interactive mar- not just faster – and in a more consistent fashion. keting activities to ever-higher levels of efficiency and Applied to precision marketing, decision manage- effectiveness. To learn more about Marketing Decision ment applications can use predictive models and other Manager, please visit www.fairisaac.com/MDM. ■ The Game’s the Thing Marketing

The old idea of product placement in entertainment is getting a new spin by delivering energetic advertising into online gaming, and reaching a very desirable demographic.

time to watching television. In this case people are ded- icholas Longano is chief marketing officer of icating time to playing video games, and the most pop- NMassive Incorporated, a new and growing ular of those hours are anywhere between 6 p.m. and kind of marketing company that creates “dynamic midnight, we find. advertising,” the placement and rotation of branded advertising into online video game environments. Right now, the importance of the network obviously is Longano has more than 15 years in consumer that it aggregates an audience, which is critical for adver- packaged goods marketing with companies such tisers, and it’s also important for publishers as well. as Vivendi Universal Games, Calvin Klein To date, we have 24 publishers [such as Anarchy Cosmetics Canada and Latin America, and Los Enterprises, Atari, Global Star, Koch Media, Legacy Angeles advertising firm MOJO. Interactive, Merscom, Oxygen, Skyworks, Sony Online The Massive Network states it can provide the Entertainment, Ubisoft and Vivendi Universal] in the best measured results on consumer interaction with network and they’ve signed up about 109 of their titles, the advertising. Beyond the so-called “advergame” of which 42, I believe, will be live within the network by – a game designed solely to sell a specific product – the end of this year. It will deliver TV-size audiences. Massive says it “enables publishers to capture pre- The difference is that it’s 100 percent accountable. viously unavailable incremental profit from their 69 games of $1 to $2 per unit by drawing upon the Q: Highlight the scope of the online gaming market. benefits of a network.” A: It’s enormous. And when we take a look at the Nielson numbers in terms of number of hours on an average Q: What’s the difference between product placement basis, in 2004 13 hours a week. If you have a retail and dynamic advertising? product, it might sell half a million units. Granted, you may only play from start to finish, and that might take A: Traditionally, product placement refers to anything that’s you 20 hours or 30 hours or less. It’s a finite experience. hard-coded or baked into a game, so it’s correct calling With an MMO, you probably have a significantly lower a movie placement “product placement” because you user base. I think the average for an MMO these days can never change it. We refer to everything we do as is about 50,000 users. They’re obviously playing many, basically dynamic and game advertising. many more hours a week. The beauty of a network is it gives you the opportunity really to get your product Q: What’s the immediate advantage of dynamic message across all the games. It’s just a perfect portfo- advertising? lio solution for an advertiser.

A: We’ve basically served 10.2 million game sessions. Q: How does a network differ from just being a company And each game session roughly lasts about 93 min- that places dynamic advertising? utes in length. So we’re talking about an audience here that’s totally dedicated toward their game. And what A: In one way, shape or form [other companies do we also noticed through our network is that … it’s not dynamic advertising], but not as a network. I believe something that you can do during your lunch break at that they may do product placement, mostly with work. So when it’s TV viewing, you want to dedicate advertising, on a title-by-title basis. But this is the first The Game’s the Thing

and only full network of its kind, which is really being single title it goes into, because you could have one ad given the thumbs-up by both publishers within the unit that is daylight, another one that’s night-based, marketplace and also by the advertisers as well. one’s in a room, one’s in a dark alleyway that you can only see with night vision goggles. Or something that is Our role here is, first and foremost, to provide pub- back-lit because it’s on a formal billboard of sorts. So lishers with a secondary revenue stream. For adver- we do all the customization on behalf of the advertisers.

marketing tisers, to provide them with a way to reach a very lucrative audience, an audience that they’ve been And then creative pieces are approved by both parties: after that is migrating away from television. And to the advertiser and of course the games publisher, the the gamer, to do everything we possibly can to make developer as well. Then each of the ads are delivered sure that we always enhance that game-playing or served through our servers into the network, across experience. That is absolutely critical. It has to be titles or into specific titles. There are a number of things good for all parties involved. that we need to do. For example, we have to marry the ESRB rating with the appropriateness of the advertiser, Q: Does placement in online games go beyond just bill- because effectively an ad message in a game is content, boards in environments? and that content could skew the ESRB rating of a game, and we can never allow for that. So there are a lot of A: When we’re talking about dynamic advertising, checks and balances that are in place. we’re talking about what you’d consider traditional billboards, outdoor billboards. We’re talking about From a gamer’s perspective, I’m not seeing any of this branding on items, whether it’s a PC or it’s an auto- happening in the background. I’m playing my game; mobile. We’re also talking about logos on clothing. it makes absolutely no difference. There’s no slow- We’re talking about audio-visual. We run 15-second down, there’s no frame rate issues. It doesn’t interfere, commercials in video games. In the future, you’ll see there are no pop-ups, there’s no click-throughs, noth-

We Provide advertisers with a young audience 70 that‘s been moving away from television.

huge television monitors throughout the game envi- ing of the sort. I’m playing my game and everything ronment in town squares where you’ll see groups of works like it should because it was put there in the first individuals socializing, building community, and tel- place by development teams. It all looks natural. evision commercials in the background. Q: Are advertisers fatigued by all the new media avail- Anything that is in a real-life setting that carries a logo able for them to advertise in? or carries advertising, you can do it, it makes sense. You could have a character walk out of a store with a cup of A: I think the most important thing is that you’ll find in many hot coffee from a world-recognized brand, or the same cases that advertisers need to take a look at the Internet. character could walk out of a different storefront with a It takes time for them to adopt a new medium. But look at Coke can in his hand. You can change clothing on char- the way the Internet is today – $12 billion a year. This is acters. During the fall, they’re wearing the latest Gap where their audience is; 18- to 34-year-old males. This is clothing, for example, and then during the summer what they’re doing in their leisure time. Now what we’ve they’re wearing something completely different. done is we’ve opened that community; we’ve opened that audience to the advertising community. And by tai- Q: Tell us more about the creative process. loring the right message to this audience, your product can do several things. It can enhance the game experi- A: We’ll get, for example, a piece of creative for a particu- ence and reach one of the most elusive audiences in the lar advertiser. That creative is customized by our cre- marketplace, in the most effective manner possible. I ative teams here, to every single ad unit and every wish I had that 10 years ago. ■ Blog This Brand marketing

Blogs are now so popular that it might be time your brands had blogs. Here’s a checklist for getting started.

Eric Reyes

robably no other marketing tool has come along Precently that has really grabbed potential con- Blog Facts sumers as blogs have. Not since TV has a vehicle for advertising so immediately captivated a national ■ 9 million blogs in the U.S. ■ audience. Not even online banner advertising – which, About 1 billion links on those blogs ■ 30,000 to 40,000 blogs created each day after being pronounced dead a few years ago, is coming ■ One third of those, however, are probably back strong – can claim the numbers that blogs do. “spam” blogs ■ Blogs, short for “Web logs,” are essentially mini Number of blogs will double in size every six months websites where anyone can post text and pictures ■ 90 percent of blogs are authored by people age simply and without too much technical knowledge. 13 to 29 They have been around for about five years, and suddenly they are everywhere. If you can think of a product, idea or cause, there is already a blog (or several) about it that is being read by journalists, Blog Spaces and Tools shoppers, policy makers and corporate executives. Yes, it is that pervasive, and a few bloggers have ■ AOL Journals ■ Blogger become celebrities in their own right. ■ iBlog 71 ■ LiveJournal Bright Spots ■ Movable Type ■ MSN spaces The marketing opportunity for CPG companies and ■ TypePad retailers is different from online advertising. While there ■ WordPress are blogs that feature tile ads and banner ads, the advantage is in starting a dialogue with your customers and addressing them as if they were in the room. The ingredi- There are some imperatives to help initiate a blog ent of blogs that has attracted so many is their folksy campaign for your brands: and friendly casualness. Blogs began as individuals ■ Come up with blogs for as many of your brands as with a point of view sharing their opinions and pretty possible – maybe one for each brand, or target just much writing the first thing that entered their heads. struggling brands. If you have too many brands, you Now, however, blogs have entered the corporate could just have a blog for each category of product world. Many companies are setting up blogs and are you sell. authoring them in-house to bring that same unaffected ■ Hire in-house writers or freelance writers who have tone of voice to a corporate mission or product. But many proven writing styles and who can convey humor companies are still trying to figure out how to position and precision. If possible, refrain from using your the blog. As a marketing tool, so many of them sound like marketing people to write the blogs – while their skills they came hot off the marketing desk and are less breezy are many, you need a perspective that is more akin and fun than those written by “regular folks.” to conversational language. Marketing may be too

Eric Reyes is an editor at Montgomery Media. He has previously edited and written for Business 2.0, The New York Daily News, Amazon.com, Excite.com and The San Francisco Chronicle. Blog This Brand

close to the brand to think of it in any way other than syndication). The basic premise is that certain content in mission statements. can be fed to a customer’s computer or handheld device ■ Feature the blog and a link to the blog on your home as the content is updated so that a regular reader does- page. If you scroll through most large CPG company n’t have to keep checking your website just to read that home pages right now, you will see none with links to day’s blog entry. marketing

The marketing advantage is in starting a dialogue with your customers and addressing them as if they were in the room.

a blog. You will see your competitors doing it with Blogs can also carry an unlimited number of links. greater frequency in the coming year. This is a great opportunity to link to areas for your brands ■ Don’t run the blog through too many approvals deep within your site. The company can devote whole (maybe just marketing and legal). The conversational archives of material that link from the blog. This offers a tone of voice must be preserved. One of the main kind of exclusive to blog visitors as well. They feel they are attractions of blogs is it is a window into the head of an receiving a one-to-one experience. individual – sometimes undiluted and pure. People Believe it or not, Advertising Age magazine recently tune in to read the same way they may peek into a stated that U.S. workers this year spent what amounts to stranger’s closet. They want to see something inter- 551,000 years reading other people’s blogs. That’s about esting behind the door. Too many cooks definitely 35 million people spending about four hours per week spoil the broth. reading blogs. That’s a lot of blog power. ■

72 Plan It Out Before you unleash someone to put together your blog, you do want to plan out what the content format should Podcast It be. A poorly planned blog will not seem spontaneous

and it will show in the numbers. If the blog reiterates cor- Another spin on the blog is the podcast. Podcasting porate points, visitors will treat it like a form of junk mail. is a way of distributing audio and video programs over the Internet that allows listeners to save files Daily, semi-weekly or weekly blog entries needn’t be or feeds of audio blogs. The often spoken-word big or time-intensive. A few paragraphs adding up to files can then be loaded into a portable music player 200 to 400 words could be enough. The entry should and listened to at anytime. It’s like a TiVo for radio programming, except it is anything in recorded format offer a casual, tossed-off feel. The actual content may that has been released on the Web. outline a few helpful hints about the brand or even be Podcasting took off last year with the popularity a consumer testimonial. The personality of the writer of Apple’s iPod and the fact that software that enabled the downloading of the audio files became is encouraged to come through. Maybe the author will available for free. Podcasting is also a subscription describe a portion of his day and how he used the brand model, which means that people usually want to to overcome an annoyance or get himself ready for an hear a series of “shows” from a single podcaster, proving that, much like the blog model, personality important party, meeting or reunion with an old friend. sometimes wins over content. The blog or blogs can also take advantage of popular syndication technology or RSS (really simple Chapter 5 active CRM o you attain customers loyal requires and keep or Science?

ey ing the right read on your loyal customer base allows better base customer and more allows ing the right read cross-sell on your loyal new strategies as the digital age matures. You know new strategies digital age matures. You as the get better get more – it can your CRM can always ow rv tt sing Your New, Improved CRM sing Your ustomers Aren’t Always King ustomers Always Aren’t cale comes from using nontraditional media to build media to personalized from using nontraditional comes cale relationships. imely reaction to shifts reaction to imely behavior. in customer Su U C Understanding Consumer Ethnic the Toward a Pr Ge When your consumers don’t exactly buy the store, are you still treating them as if are you still buy the store, When your consumers don’t exactly they are? Global strategy begins up of U.S. consumers at home. The ethnic make is expanding, mixing and ready spend. you ready to Are get their attention? to Enable your customers their purchaseEnable do more business with you by anticipating to process or “journey.” S t

bsite. Now is the time to showbsite. to Now customers is the time you provide more ep everyone buyers one-time coming back. Even are not 86 84 78 80 74 than just a product and can be a resource and a guide. guaranteed to come a second come your to or to guaranteed your store into time we proactive. loyalty at Do you stop cards? Asyour customer out how figure need to you will to becomes more multicultural, ke H Satisfying Customers Toward a Proactive CRM

Enable your customers to do more business with you by anticipating their purchase process or “journey.”

Satisfying Customers Michelle Bottomley, Kevin Horne, Brenda Magnetti Erickson | OgilvyOne Consulting Services, North America

oday, there are many examples of consumer CRM Today’s CRM programs often take the form of a maga- Tprograms in the marketplace, ranging from the trav- zine delivered to the home. Tomorrow, CRM programs el industry’s frequent-flier programs to retailer points- will rely more heavily on new media, such as video based loyalty programs. In the late ’90s, packaged goods content on our cell phones, in stores and in unexpected firms, with their thin margins, figured out how to make areas of the Web that entertain and educate us – pow- CRM profitable with multibrand CRM initiatives that ered by our favorite brands. Our interactions with this could carry business impact across a number of brands content will, in turn, make the senders smarter about by providing a single voice to the consumer. Successful our preferences, allowing them to deliver even more CRM programs in consumer packaged goods (CPG) relevant messages and offers based on what we view, companies programs include: Unilever’s Home Basics, buy or chat about with our friends. Kraft’s Food and Family, Procter & Gamble’s Home Many marketers experienced in CRM programs Made Simple – along with infant formula programs such today are designing customer experiences that can as Mead Johnson’s Enfamil Family Beginnings. anticipate customers’ needs along their journey These CRM programs have generated significant from awareness to trial, repeat usage and, ultimately, incremental revenue to the brand P&L and delivered brand advocacy. Next-generation CRM programs intangible value to the consumer beyond the individual will be more proactive, using data to deliver greater 74 products they might purchase. Value arrives in the relevance at all points of contact. However, the focus form of information and entertainment – something of proactive CRM is on creating a differentiated brand today’s consumers seek from their trusted brands, in experience for the consumers that count more so than a way they would only accept from third-party experts the technical infrastructure. in the past. Why would consumers want a relationship with a What Is Proactive CRM? brand? There are many reasons, but most important: Proactive CRM involves enabling high value con- ■ Today, with so many choices, so little time and various sumers to get more value from their brand experi- ways to shop, consumers are looking for a personal ences than the product alone can provide. This voice in the marketplace. requires understanding consumer needs and con- ■ We believe today’s consumers value brands who structing differentiated brand experiences that meet operate as a “trusted adviser,” understand their those needs. It also requires understanding how needs and can help them navigate the marketplace your consumers are interacting with your brand complexity to find the best solution. and leveraging that insight to deliver highly targeted ■ By anticipating consumer needs, a CRM program and relevant messages and offers at every point of can take the role of the trusted adviser and accelerate contact. And it means making tough choices about the decision-making process, moving the target where you place investments that will deliver an consumer to the best choice available: your brand. effective ROI.

Michelle Bottomley is general manager of consulting services at OgilvyOne North America. She leads the U.S. consulting organization which includes 70-plus specialists in the areas of data, strategy and direct channels. Kevin Horne is executive director of strategy at OgilvyOne Consulting Services. He was previously at Procter & Gamble and the Pepsi-Cola Company. At Ogilvy, he leads client engagements in marketing strategy-related areas such as CRM. Brenda Magnetti Erickson is director of relationship marketing at OgilvyOne Consulting Services. For nearly 20 years, she has developed business solutions for clients such as ConAgra Foods, Crayola, Heinz and Unilever. Consumer Goods & Retail Report Satisfying Customers This requires understanding key consumer ■ Channel stakeholders will continue to leverage segments, having an arsenal of messages and technology to maximize profitability, down to the offers that profitably change segment behaviors, last penny of investment. Now more than ever monitoring the impact that those messages and offers manufacturers can enable the channel to build have and flexing new messages and offers more profitable customer relationships through that are best able to optimize segment behavior joint communication and enabling their proficiency and program ROI. at data-driven marketing. While the Internet and direct mail have provided • Opportunity: Consumer-centric companies great venues for brands seeking to differentiate and that can support channel-specific retail and build emotional connection with their consumers, with media plans with CRM-derived data and incre- more CRM programs in the consumer marketplace mental revenue will maximize reach.

Proactive crm involves enabling consumers to get more value from their brand experiences than the product alone can provide.

than ever before, the stakes are higher. The next wave That said, it is important to recognize the ongoing of CRM programs will provide access to better infor- challenges to CRM initiatives. The biggest of these are: mation in real time. For example, accessing recipes ■ The evolving retail landscape. Consumer brands via cell phones at the supermarket or watching “edu- can only succeed if they build CRM initiatives tainment” on wireless devices are coming. Proactive that enable the channel to build stronger con- CRM programs are increasingly embracing the data sumer relationships. and technology that exists today and connecting it with ■ Difficulty in linking category dollar sales (espe- communications to deliver greater personalization cially those made by cash), consumer prefer- at time of need. This results in greater incremental ences brand interaction data within a consumer 75 revenue and ROI. database to build effective value segments and treatment strategies. Opportunities and Challenges ■ Burgeoning issues with privacy, identity theft and The opportunities for CRM programs going forward potential regulatory intervention. are compelling. Here is what the future holds: ■ The consumer demand for tailored, personalized Armed with a proactive CRM strategy your market- treatment will increase because the tools exist ing machine and your best targeted messages through which consumers can “pull” content and and offers can be deployed to produce a profit pro- information. (Tivo and iPod are examples.) ducing consumer experience. This is taken up in part • Opportunity: Consumer-centric companies two (page 78). ■ that can dynamically deliver on this demand will disseminate communications experiences to all points of contact with personalized treatment to gain market share. ■ The competitive threats will proceed from all angles – not just through megamergers like P&G/Gillette – Today’s Consumer Seeks: but through niche players who can command mind-

share and grow through new marketing models such ■ Anticipation of needs at key Moments of Truth as “peer-to-peer” (SKYPE). along the customer journey; • Opportunity: Consumer-centric companies ■ A relationship that references past interactions; ■ Compelling offers and messages; that use CRM to create competitive barriers ■ Solutions, not products; and will solidify retail customer and consumer ■ Delivery on their time table. relationships. The Strongest, Most Experienced Direct and Interactive Marketing Network in the World

ince our founding by David Ogilvy in 1972, Applied Customer

Solution Provider SOgilvyOne has grown into the world‘s largest Relationship Management direct and interactive marketing agency, with over Brand leaders recognize that building targeted rela- 3,500 staff (including 800 interactive specialists) tionships with category-heavy users is a powerful located in 115 offices around the world. Our clients growth strategy. This requires aligning existing assets, are the world‘s best brands, with one thing in common – such as targeted communications, segmentation, they seek to protect, nurture and grow their two most marketing databases and Web/call center experiences valuable assets: their brand(s) and customer relation- to deliver on the brand promise. Our data-driven ships. OgilvyOne helps organizations grow profits by marketing consulting, coupled with high-impact direct nurturing the relationships that generate the majority marketing and interactive communications, has been of brand and category volume. This requires a blend recognized for its ability to produce results. Our direct of marketing art and science to identify key targets marketing communications have won nearly three through data mining, then to build emotional bonds times the ECHO Awards as our nearest competitor. with those targets in a way that transcends the function- We have also received agencywide honors from al benefits of the products. Our quantitative analysis has AdWeek, AdAge, B2B Magazine and PhAME for found that brand leaders tend to have a disproportion- our B2B, pharmaceuticals, interactive and integrated ately high share of high-value category users bonded to marketing work. their brand. We succeed when customers have emotional equity in “their” brand and exhibit the following: Customer Ownership ■ You are their first choice; More than 30 years of direct marketing experience ■ They look to you to solve their needs/problems; has yielded our proprietary methodology – Customer ■ They share information with you; OwnershipSM, a robust framework for differential mar- ■ They ask you for guidance; keting resulting in highly targeted customer acquisition, ■ They discuss your offering – not your prices; cross-sell, retention, win-back and experience manage- ■ They positively suggest how you can improve; ment programs. ■ They want you to succeed; and Customer Ownership includes a tried-and-true ■ They advocate “their” brand to others. toolset for unlocking the value of key prospect and customer relationships based on best practices from around the world. A summary of our proprietary tools follows. 1. Relationship Economics/ Investment Allocation Key Tools While not every OgilvyOne tool is required in every 2. Emotional Bonding Drivers situation, the tools consistently deliver quick wins and longer-term strategies for protecting and increasing Continuous Improvement 3. Program Concept and the value of our clients’ brands through the strategic Communications Model use of marketing information.

4. Optimization Ogilvy Loyalty Index A quantitative analysis tool showing the financial value of emotional loyalty using the WPP Group’s BRANDZ™ 5. In-Market Testing and Analysis data (managed by Millward Brown) – a proprietary global brand database covering 20,000 international and local brands across more than 100 product categories. Figure 1: OgilvyOne‘s Disciplined Approach to Building Data analysis is performed for specific brands compared Profitable Relationships with their key competitors. Solution Provider starts with insights SM CEO, CEO, eneral Manager, eneral G und targets – where they o-CEO, Ogilvy, Northo-CEO, America Chairman & CEO, Chairman & CEO, C o-CEO, Ogilvy, Northo-CEO, America ■ C One Consulting Services,One Consulting North America yOne worldwide aluate vy v il il Ev

Michelle Bottomley, Bottomley, Michelle Og Carla Hendra, Carla Hendra, Gray, Bill Our mission: to profitably grow customer profitably Our mission: to equity and good will. volume in value, Lazarus, Shelly The Ogilvy Group Brian Featherstonaugh, Og ising, Ogilvy The Lacek Relations, Public vy rt bond, we develop targeted develop bond, we strategies and tactics into marketing,into and customer communications

il erience plans. ve orm a differentiated and ownable brand propositionorm a differentiated and ownable brand ch y positive and negative moments the of truth for f p ed roup (loyalty and mOne (direct marketing) and roup, OgilvyOne partners with Ogilvy & Mather

oint of contact to surro oint of contact to arious stages along the customer journey. the customer arious stages along or strengthening and lengthening relationships at G integrate media planning and buying), to interactive and deliver greater impact one specialty than any can on itshave own. ex Bonds Three primary bonds drive between the relationship and users:brands financial, social For and structural. ea f v Og objectives prioritize A tool to and guide the ongoing performance.measurement of marketing It includes a typological performance of eight key map indicators in health, response and ROI including brand rates one snapshot. Ogilvy includes a meas- Evaluate output and following prior to urement workshop development. to that can be expressed across every meaningful p live, work and play. As a member of The Ogilvylive, and play. work G Ad 360-Degree Stewardship Brand 360-Degree Stewardship Brand ke and itsbrand competitors planning using a rigorous and research process that includes mapping and Momentsbenchmarking. of truth are then incorpor- at sment Tool) T™ (Customer Management T™ (Customer A gments. strategies that move It is used prioritize the to vid word portraits segments, customer of key capturing ap Analysis ustomer Journey ustomer ustomerPrints ap Analysis identifies which of three behavior gaps key which identifies ap Analysis alue Spectrum see to the marketer current allows ast 10 years. areto Principle (80/20 rule) using actual market data market using actual Principle rule) (80/20 areto cored results benchmarked against other companies against cored results benchmarked rom our database of over over 650 firms, collected the ion points between and users. brands identify We Moments of Truth are the make-it-or-break-it interac- Moments of Truth t The view of a relationship from awareness to inquiry, to The view from awareness of a relationship trial advocacy, including needs, media con- and ultimately moments and key sumption of truth. C Vi how fits the brand their everyday into lives through depiction of their thoughts, feelings and personalities. CustomerPrints experi- tailored customer of highly the development enable strategies. marketing ence and one-to-one C BrandPrint meaning and prom- of the brand’s A concise distillation alignment among differ- ise. Provides for the foundation ent stakeholders relationship, on the nature of the brand universal language, consistency behavior and of brand drivers and directs of change, brand-building activities points. touch across all G G sales, and two(acquisition, retention) gaps “emotional” prospect key for exist or customer (attitude, awareness) se highest number of prospects customers. valuable to share of wallet. DFM Triangle and Value Spectrum and Value Triangle DFM shows the Triangle (differential marketing) The DFM P a category for (or proxies where unavailable) or brand. relationships It provides brand key both the number of and the potential from retaining, growing acquiring and Spectrum pro- more of these relationships. The Value vides a two-dimensional view relationships: of customer first usage, of brand second of category usage. The V CM Asses Developed by QCi, the recognized in CRM leader benchmarking, this global, detailed, companywide includes management practices audit of customer s f p Using Your New, Improved CRM

Scale comes from using nontraditional media to build personalized relationships.

Satisfying Customers Michelle Bottomley, Kevin Horne, Brenda Magnetti Erickson | OgilvyOne Consulting Services, North America

t the center of any decision for how to activate rela- alignment well beyond the traditional product-based Ationships using CRM programs is targeting and approach. It starts with putting the consumer at the building emotional bonds with the consumers that count. center and establishing a two-way dialog that allows How can consumer marketers use CRM proactively to consumers to communicate their needs and under- build their businesses from new and existing consumer stand the right set of products to meet those needs with relationships? There are three major areas to tackle. a combination of product information and advice. The net result of overall category sales growth, higher The Way Forward No. 1: brand share of wallet and, ultimately, brand advocacy. Solutions-Focused Marketing The consumer goods and retail industry has long been The Way Forward No. 2: product-based, in turn leading to a transaction-based Targeted Messages and Offers orientation. It may seem odd to reference “solutions” in Putting the right message in front of the right consumer at such a business. Solutions are, in simplest terms, a higher the right time is the dream of every marketer. New online order and fuller response to a consumer need when advertising techniques are making this dream a reality. compared to a one-off product purchase. What makes the Internet different from traditional media For example, a consumer could buy a tube of tooth- is that it encompasses both classic targeting methods 78 paste, but if she is really looking for whiter teeth, then (such as demographic and psychographic profiling) with the opportunity exists for the CPG company to provide interactive techniques (such as behavioral targeting, paid a much more robust set of offerings. This would include search and contextual placements). the toothpaste, of course, but could also provide: This medium is dynamic and can respond in real time ■ Dental visit reminder calendar; to consumer interactions with advertising messages and ■ Teeth-cleaning accessories; to purchase behaviors. This improves targeting and con- ■ Color chart; and version as well as cross-sell and upsell opportunities. For ■ Online information about the whitening process, example, if a consumer responds to an iPod marketing and more. campaign by purchasing a pink iPod Mini, a follow-up email or ad placement can be generated to her promot- By providing this broader suite or solution, the company ing a pink carrying case. Whereas if she browsed but can exceed consumer expectations and build the found- didn’t purchase, the next contact she receives could fea- ation for a wide and deep relationship over a longer period. ture and promote a special offer on a pink iPod Mini. The increase in revenue and profitability should follow. Contextual targeting and search marketing sends Where does CRM fit into this scenario? The ability advertising to consumers when they are actively seeking to fashion the right solution is a delicate balance, requir- information about the product or service. For example, a ing a depth of consumer understanding and offering diaper marketer can find moms searching for baby infor-

Michelle Bottomley is general manager of consulting services at OgilvyOne North America. She leads the U.S. consulting organization which includes 70-plus specialists in the areas of data, strategy and direct channels. Kevin Horne is executive director of strategy at OgilvyOne Consulting Services. He was previously at Procter & Gamble and the Pepsi-Cola Company. At Ogilvy, he leads client engagements in marketing strategy-related areas such as CRM. Brenda Magnetti Erickson is director of relationship marketing at OgilvyOne Consulting Services. For nearly 20 years, she has developed business solutions for clients such as ConAgra Foods, Crayola, Heinz and Unilever. Consumer Goods & Retail Report Satisfying Customers mation online based on the keywords they enter and the reducing their expenses while increasing their response – sites they visit. The marketer can then deliver highly tar- resulting in a higher marketing ROI. geted messages to moms while they are on the sites that interest them. The Way Forward No. 3: Making it All New media channels such as mobile marketing are Add Up to One Great Experience opening new opportunities to reach consumers. If we Consumers experience organizations as one entity, despite look to Europe and Asia, mobile phones are quickly the fact that most firms have different marketing depart- becoming the most important device for consumers, and ments for each product line. One key to creating a high- this is likely to cross over to the U.S. market. Mobile mar- impact brand experience is establishing collective

New media channels such as mobile marketing are opening new opportunities to reach consumers.

keting allows advertisers to reach consumers at any time knowledge based on key segments – and ideally – a uni- and at any place with relevant and targeted offers based versal segmentation schema that every marketing organi- not only on their profile but also on time of day and loca- zation can align with. Great experiences start with clear tion. For example, someone walking by the Gap may get segment definition, then articulating the segment-specific a message to stop by for 10 percent off their purchase that customer journey, including key moments of truth and how day. Or a consumer could be prompted to text in for a the consumer consumers media along the journey. With Coke ringtone. This could lead to offers to buy more of this backdrop, specific CRM programs and communica- the product, for chances to download music or to create a tions strategies can be put into place to unlock consumer mobile community enabled by Coke. value currently going to the competition. Targeted messaging and offers, regardless of delivery Proactive CRM connects data with communications medium, can be driven by a number of data inputs – rang- to deliver greater relevance to the consumer and profits 79 ing from actual transactions to self-reported surveys or to both retailers and manufacturers. There are now sophisticated behavioral modeling. The beauty of targeted brands beginning to play in this space with great success, marketing is that it is good for the consumer as well as the using traditional and nontraditional media. You could be manufacturer and their retail channels. Companies experi- among them, creating happy customers and greater ence greater success by narrowing their audience and profits for your organization. ■

Is Your CRM Proactive or Reactive?

■ Do you understand your customer segments, including their current and potential economic value and the potential monetary losses by not acquiring, retaining and growing more of the key relationships? ■ Can a consumer change which segment they are in today based upon their interactions tomorrow with your brand? Or once they are put into a segment are they left in that segment? ■ Do you have a differentiated value proposition and offer strategies that meet the needs of your customer segments? ■ Do you intersect the fast-paced, modern lives of your most valuable consumer segments through behavioral targeting, paid search and contextual placements on the Internet? ■ Do you send trigger-based messages to consumers based on prior interactions with highly relevant messages and offers to purchase? ■ Do you use technology, such as rules-based engines, content management systems or campaign management tools to deliver highly relevant messages and offers at multiple points of contact (online, phone, direct mail, etc.)? ■ Do you measure the impact and success of your CRM efforts in terms of your ability to retain, grow and acquire more of the right consumers?

If you answered yes to each of these questions, you are proactively managing your CRM investments. Customers Aren’t Always King

When your consumers don’t exactly buy the store, are you still treating them as if they are?

Satisfying Customers Eric Reyes

ho are your customers? Not just in a demo- tomers? If that 60 percent is constant year after year, can Wgraphic sense. You may know that 30 percent those sales still factor in as customer acquisition costs? of your customers are between the ages of 18 and 30 That depends. and own Chevy cars. Increasingly when companies talk about customers they are splitting the fine hairs on Split the Differences what defines a customer in the first place. Some industry analysts just divide the money spent quar- If your customers can make purchases from you terly on advertising and marketing by the number of cus- online and at stores, you may define a customer that tomers served in that same quarter to get the cost per buys from one or the other differently. Aside from the acquisition. That doesn’t take into account deep discounts obvious, the online buyer may not even be counted as to get them in the door or the free delivery your company a customer until they’ve become a loyal customer. offers if you have a Web presence. That math also does not Especially for online-only merchants, calling a buyer factor in costs to the company as a whole – executive

A profit-potential forecast for each of these 80 customers would go a long way to predicting which one is going to give you more gains.

a customer is much more tenuous, since many one-time salaries, IT costs, inventory maintenance and website buyers never come back. improvements. Some analysts believe weighing the costs How to define and when to define a buyer as an actu- solely under the marketing and sales side is ambiguous. al customer becomes important when figuring cost of The difference of opinion comes from measuring acquisition. Since customer acquisition costs are higher profitable customers the same way you would unprof- for Web-only retailers than for traditional store retailers itable ones (the one-time-only buyers). It makes the that sell more than one category of product, it might be repeat customers seem very expensive to acquire and wise to ignore one-time buyers. If you start adding them the unprofitable ones easy to acquire when the opposite to cost-per-customer breakdowns, you may be left with a is usually true. Calculating these differences might be as number much smaller than actual acquisition expendi- easy as tracing which customers came from specific pro- tures. If 60 percent of one-time buyers never come back motions and their buying history that year. It also may to your website (for whatever reason, or frankly for no have a lot to do with their profiles: What is the actual profit reason you can track), can you really call them cus- for each customer individually? Does their profile make

Eric Reyes is an editor at Montgomery Media. He has previously edited and written for Business 2.0, The New York Daily News, Amazon.com, Excite.com and The San Francisco Chronicle.

Customers Aren’t Always King

To make a complicated problem less so may mean making the formula simpler: ■ Realize you have the means to trace and measure already in the company systems; ■ Sort types of activities and their specific costs; ■ Allocate costs to all types of contact a customer may have with the company (calling customer service, complaining, making requests and returns); and ■ Assign a cost to time between purchases. Satisfying Customers

CRM It Knowing how valuable each customer is may not lie completely in a simple tally of what they have spent in dollars with you year after year. Being able to configure your CRM goes a long way toward treating certain classes of customers differently from others. For example, does the one-time customer receive the same messaging (email offers, also-bought suggestions, newsletters, rebate offers, etc.) as a repeat customer? Are all your customers sent messaging that treats them as if they How to Define have never bought from you before? If the messaging changes, does it get more insistent as time between Your Customer purchases lengthens? Once you have answered these questions and

Each customer is not just a sum total of what adjusted the values accordingly, there is still work to be they spend on your website or at your store. done. The information must be accessible companywide, Understanding this customer means answering and everyone who might use it needs to know how to a set of questions about them: 82 ■ When do you call them a customer? Is it when use it. It is a kind of tiered system, where you treat the they buy, or is it when they visit a certain num- best customers differently than the less loyal ones, but ber of times and buy repeatedly? first you have to make certain you are talking to the ■ Do you know each customer’s preferences? Do you know what kind of service they expect; right customers. (Someone who spent a large amount what kind of service they have received in the on one purchase two years ago may not be worth chas- past? Does the amount they spend determine ing.) Knowing who the customers really are will help their grade of service? ■ What prompts visitors to become customers? determine what kind of service David Doe gets when he Is it price or presentation? calls in, what kind of marketing budget certain products ■ Where else do your customers shop? Are there should get and what kinds of services are too costly. alliances and partners you can gain to place your product before more potential customers? The last and most daunting task is to collect the ■ What is the exact mission of your product? individual customer information and come up with Does your customer know how to use your the right profiles. If you are a large company with a product, and is it being used for something else of value? multitude of products, your customer information is ■ Why do your customers remain loyal? What ele- probably kept within the divisions themselves. These ments do they weigh when they need your prod- data silos aren’t best for getting a clear picture of a uct? Why do they not go to your competitors? single customer. Pulling apart the credit card transactions, marketing enrollment data and customer service logs might just be impossible without investing in enter- them more likely to spend over a “lifetime” – in other prisewide software changes and/or software overhauls words, is the customer young and in a high-income and upgrades. bracket or is she at retirement age and bought the Calling a customer by his or her true stripes has product as a gift? A profit-potential forecast for each become no easy task. Squeezed by thin margins and of these customers would go a long way to predicting ever-leaner operations, CPG and retail companies need which one is going to give you more gains. to elevate a system that defines a customer accurately. ■ Delivering Solution Provider Outstanding Results In the Retail Sector S&H Solutions provides the retail sector with powerful and adaptable customer- &H Solutions has consistently built upon decades of based business solutions that help clients develop profitable customer relationships customer loyalty and rewards experience to deliver S and deliver proven business results. outstanding results in the retail sector. The concept of Ron Pedersen, CEO rewarding customers was realized by S&H with the Steve Ritacco, CTO immortalized Green Stamps and continues today with not Guy Keller, Sr. VP of Sales only the S&H greenpoints program, but also with its com- Kimberly Mernovage, VP of Marketing prehensive portfolio of customer-centric business tools. Today, S&H Solutions works closely with retail partners S&H Solutions 1625 South Congress Ave. that generate over $4 billion in annual sales, and processes Delray Beach, FL 33445 500,000 customer transactions each day through 4,000 Phone 561.454.7600 Fax 561.265.2493 North American checkout lanes. S&H Solutions’ largest www.shsolutions.com business is the U.S. grocery industry, but it also plays a sig- www.greenpoints.com nificant role in supporting the wholesale, financial and gam- Business Contact ing industries. Katie Safriet, Public Relations Phone 561.454.7611

A Strategic Partnership S&H Solutions’ clients know that working together is an leading technology platforms and expertise for loyalty ongoing strategic partnership. To help partners reach their interaction, marketing and continuity, clients are empow- short- and long-term business goals, S&H Solutions pro- ered to achieve their customer relationship objectives and vides continuous strategic, technical and operational sup- thus a sustainable competitive advantage.

S&H Solutions’ proven custom solutions, based on an in-depth analysis and expert knowledge, enable even small retailers to compete effectively with the giants in their respective verticals. port. Beginning with a complete marketing assessment, With S&H Solutions, clients embrace a customer- this partnership includes the following support activities: focused competitive business plan that allows them to pres- ■ Sales, margin and ROI development; ent their customers with the most relevant, timely and highly ■ Business plan creation and deployment; targeted messaging and offerings seen in most industries. ■ Project plan execution including technology, card S&H Solutions’ proprietary tools and systems allow clients enrollment and training; to track their customer purchase behavior along with ■ Development of new revenue streams; deductive variables by using sophisticated data modeling ■ Delivering extensive data reporting services; techniques and reporting. S&H Solutions’ data-driven ■ Providing a comprehensive turnkey rewards infra- strategies and focused execution engage the customer structure; and through the entire purchasing behavior life cycle, realizing ■ Delivering unlimited marketing programs. both short- and long-term strategic marketing goals.

S&H Solutions’ proven custom solutions, based on an Solutions in-depth analysis and expert knowledge, enable even S&H Solutions’ comprehensive range of customer-based small retailers to compete effectively with the giants in business services and integrated solutions can be tailored their respective verticals. to reflect the clients’ unique business processes and customer marketing needs. Over the past 100 years S&H The Customer Is Key Solutions has developed and perfected a comprehensive It is S&H Solutions’ belief that the customer is the core of loyalty and rewards solution ecosystem that has evolved the clients’ businesses. Thus, by leveraging S&H Solutions’ into an extensive customer-centric portfolio. ■ Understanding the Ethnic Consumer

Global strategy begins at home. The ethnic make up of U.S. consumers is expanding, mixing and ready to spend. Are you ready to get their attention?

Satisfying Customers Diane Anderson

y 2020, America’s largest ethnic group will be ny with 2004 revenues of $1 billion dollars – achieved by B“mixed,” a blend of the nation’s dominant racial offering children an alternative to Barbie. Mott’s revived flat groups – African-Americans, Asians, Hispanics and sales of its Clamato juice by marketing it exclusively to whites. The 2000 U.S. Census strengthens the point: Hispanics. Before Mott’s initiated this tactic, overall sales of The typical two-parent, same-race, same-religion, two- the juice were nearly 2 million cases. By 2003, sales to car, suburban household is giving way to an increasingly Hispanics alone matched that volume. Mott’s benefited, in multiracial, multigenerational world. Although only 2 part, because Clamato has an underground reputation as percent of the 2000 U.S. Census reported belonging to an aphrodisiac in some Hispanic communities. Part of the more than one race, those that did were typically young, success of Mott’s and other companies in the Hispanic mar- with 42 percent of the 6.8 million declaring themselves ket comes from understanding what appeals to Hispanics multiracial being under 18. And the growth of the nation’s and the subtleties among various Hispanics groups. immigrant population outstrips that of other countries, so America will look radically different by 2040. ¿Habla Español? Why is it important to understand the changing land- Medica Economics Group reports that ad dollars in scape? These “minority” groups, which will soon make Hispanic magazines grew by 24 percent between 2002 up the majority, are astoundingly active consumers. Not and 2003, versus a growth rate of 8.6 percent for the gener- 84 only do today’s multicultural markets show strength in al market over the same period. General Motors, for exam- numbers, they show strength in dollars. The 102.8 per- ple, raised its spending on Hispanic-themed magazines cent increase in minority buying power since 1990 far out- $7.7 million, a 166 percent jump over the previous year. paces the 67.4 percent increase for the white population Marketers invested $101.9 million in Hispanic mag- during the same time period. azines during the first half of 2005, up 17.7 percent from the same period last year, according to TNS Media Look at the Numbers Intelligence. The top spender in magazines continues The Selig Center projects that by 2008, the combined to be Procter & Gamble, spending $11.2 million in 2004, buying power of African-Americans, Asians and Native according to TNS. Americans will account for 14.3 percent of the nation’s Spanish TV is now the fastest-growing medium, gain- total, or $10.6 trillion, up from 10.7 percent in 1990. The ing some 15 percent in the first part of 2005. Mainstream buying power of Hispanics will rise from $653 billion in TV outlets such as ESPN have launched ESPN Deportes 2003 to $1.01 trillion, outpacing the buying power of La Revista, adding a print component to its Hispanic African-Americans, which will rise over the same period cable sports programming. And Editorial Televisa, the from $688 billion to $921 billion. Those numbers translate publishing giant behind titles such as Vanidades, Cristina into an increase of 315 percent for Hispanics, 287 percent and Men’s Health en Español, will unveil Tu Dinero. for Asians and 170 percent for African-Americans, com- The monthly Spanish-language personal finance maga- pared with a projected growth of 112 percent for whites. zine will launch with a circulation of 75,000 to 100,000. Savvy companies are capitalizing on the spending Appealing to the African-American market has power trend. Look at the popularity of Bratz dolls, a compa- taken on increasing strategic importance in recent years.

Diane Anderson has been writing and editing for various publications for the past decade. She is senior reporter at Brandweek magazine. Consumer Goods & Retail Report Satisfying Customers It is becoming nearly impossible to maintain market lead- part-Asians make up 13 percent of the statewide pop- ership without directly addressing African-American ulation. But in the nine San Francisco Bay Area coun- consumers in a consistent and meaningful way. ties, Asians make up 21 percent of the population, African-Americans represent 13 percent of the U.S. exceeding the Bay Area’s Latino community. population. Their buying power in 2004 was $723 billion. ■ High income – Asians in the United States are the By 2009, that figure is projected to reach $965 billion, highest-earning subgroup, with a median income of when African-Americans will account for 62 percent of $57,518 compared to the national average of $44,389, the combined national spending power of all African- according to data produced by the U.S. Census Americans, Asians and Hispanics. This means that based on 2004 sample surveys. African-American consumers will account for almost 9 cents out of every dollar that is spent in the United States. Targeting Bicultural and Furthermore, stereotyping the African-American Tricultural Consumers market as low-income is erroneous. As far back as the Ethnic populations are not effectively reached by adver- census of 2000, 19.3 percent of African-American adults tising placed with traditional, “general market” media. had earned a bachelor’s degree or higher. And African- Nielsen Media Research shows that only one top-10 American households with annual incomes that exceed general market program, American Idol, is among the

The buying power of Hispanics will rise from $653 billion in 2003 to $1.01 trillion, outpacing the buying power of African-Americans.

$75,000 now stand at 14 percent, comparable to Hispanic top 10 for African-American homes. And that show just households at 15 percent. raised its price to $700,000 for a 30-second ad. The Howard Buford, president and CEO of Prime Access, Los Angeles Times’ estimated Hispanic market of notes that planning services are misguided in selling 778,181 reaches only 12 percent of the 6.5 million 85 African-Americans retirement packages. Research indi- Hispanics in the Los Angeles area. More than 21.5 cates that African-Americans’ top concern is financing million, or 36 percent of all 10- to 24-year-olds, belong their children’s and grandchildren’s education. Since life to a nonwhite ethnic group. These facts make your expectancy among African-Americans is lower than that company’s multicultural efforts hard to ignore as a part of whites, it’s easy to see why financing a child’s education of any youth marketing plan. is more compelling than retirement planning. Even when general market advertising does reach Asians are another group that will greatly influence ethnic audiences, the advertising messages often miss America’s bicultural mix. Here are some key Asian facts: the mark. Multicultural audiences feel that mainstream ■ Growing fast – In March 2002, 12.5 million Asians media does not understand them, for the most part, and and Pacific Islanders were living in the United States, does not speak directly to them. according to the Commerce Department’s Census Targeted ethnic media, however, cater their messages Bureau, representing 4.4 percent of the population. to their communities. Ethnic newspapers contain editorial TV measurement firm Nielsen Media Research focused on the news and issues directly affecting their recently adjusted its count for certain minority readership. Spanish-language radio stations, among the groups. The most stunning increase was in the num- top-rated stations in many markets, feature music catering ber of Asian TV homes, which rose by 3.2 percent to to Hispanic tastes. And television outlets such as BET, the 4.2 million, out of a total of 110.2 million U.S. homes. International Channel and Telemundo draw diverse ethnic ■ Cosmopolitan – Asians and Pacific Islanders living audiences with their focused programming. in the United States are likely to be well-educated and But while companies obviously must address various live in a metropolitan area, according to a statistical cultures with finesse, they also must be mindful that the snapshot taken in 2002 by the U.S. Census Bureau. cultural blending will continue. Individuals won’t continue Not surprisingly, states closest to Asia boast the to fit neatly into one category but will, in fact, identify with largest Asian populations. In California, Asians and more than one cultural group. ■ Survey or Science?

Getting the right read on your loyal customer base allows better cross-sell and more timely reaction to shifts in customer behavior.

Satisfying Customers Subhashis Nath | Infosys Technologies

hen stores were small, identifying customers Survey data usually rules in predicting, especially Wfrom their purchase was common. The corner when same responses hit 80 percent or better. For grocer knew Mrs. Smith had a dog because of her regu- example, if a survey report relevant to our RTA states lar purchase of chew toys (even though she bought her that 78 percent of weekday (Tuesday-Thursday) evening pet food elsewhere). Since the store owner’s dog-food shoppers are singles, this can be used to derive probable buyers also bought beach balls a lot, he cross-sold them consumer demography from POS time-of-transaction to Mrs. Smith, too. in your analyses. With big-chain retailing such selling gets difficult. With retailers, privacy concerns and the related inability Picture This to identify customers create situations where market-bas- From certain drugs in the basket of consumer X we infer ket analyses show product co-affinity – but not trends for that X is probably a senior citizen. From the regular pur-

When the analyses are conducted for thousands of customers, the insight generated is likely to show 86 a reasonable statistical confidence level.

a segment – because the link from transactions to con- chase of premium wine in the basket of consumer Y we sumer attributes is often missing. infer that Y has a high income. To check if even wealthy Of all the products that a retailer carries, some seniors exhibit cherry-picking behavior, we conduct a products are “near sure” indicators or highly probable correlation of the ratio of promoted items in baskets to indicators of the buyer’s demography. Goya products, the consumer attributes of senior-plus-rich. The results for example, often signify Hispanic buyers. For certain may surprise us and have marketing and merchandising drugs the senior citizen is the likely buyer. For certain implications. (Time availability could be a more impor- premium items the buyer most likely has a high income. tant factor than income in cherry-picking behavior. For organic vegetables, the health-conscious buyer is Similarly, a person may be a cherry-picker for some assumed. And there are other “near sure” relations. product groups and not for others.) Similarly, times of shopping, basket size, percentage Far-fetched? Actually, not more than the household of ready-to-eat items and the like are good indicators surveys that we base so many decisions on. All we are of buyer types as well. saying is that demographics have been used to predict

Subhashis Nath has 10 years of experience in marketing, customer relationship and consulting. He has worked with European and U.S. retailers in the areas of CRM, demand planning, merchandising and analytics. He is currently a principal with the Retail and Consumer Goods practice of Infosys Technologies.

Survey or Science?

behavior, but the same relationship, when strong, can based on common sense, experience or “strong” data. also be used in reverse. (If the data says 80 percent of lemonade purchasers are We are effectively using a rudimentary form of data moms, it’s a good association to use. If it says 45 percent, fusion. This has been used in areas other than retail, it isn’t a good association to use.) and mostly for survey shrinking. This technique can pro- Examples: Turning Leaf wine purchase = 90 percent vide multilevel inferences. However, for our purposes we mid-income, 74 percent males; weekday noon shopping shall stick to inferences that are more direct and simple. = 80 percent housewives. In practice, one should even use more than one behavior for an inference. Business Rule 3 Satisfying Customers From the transactions linked together by an encrypted The Virtual Customer number, a demographic profile is built in the system. As some retailers already do (subject to laws applicable In cases of conflicting indications, that transaction at one’s location), credit card numbers or checking chain will show zero insight on that parameter. This account numbers or phone numbers can be used to link will go on to affect the confidence level to a query. This transactions if the numbers themselves do not appear in is also the reason why one needs to be cautious in result data, analyses or reports. This implies encryption Business Rule 2. and one-way algorithms. This encrypted identifier is then our virtual consumer, whom we shall describe with Business Rule 4 inferred demographics of our choosing such as income, Marketing and merchandising can now seek the demo- age, sex, life stage and ethnicity. graphic profile of a specific set of customers. For all encrypted identifiers the following will be true: Query: Who are my shoppers in store 53? ■ Each will display a product/category/store frequen- Result: At least 10 percent are teens, 20 percent in cy, i.e., which store does she frequent most; how often their 20s, 20 percent in their 40s and 35 percent are over does she purchase premium goods or promoted 60; 40 percent are high income; 47 percent male; 10 per- items, frozen dinners, etc.? cent Hispanic; 40 percent singles. ■ Each will display certain repertoire size. Does she (Note that the results tell us minimum percentages always buy one or two items? Does she typically buy and address only some of the customer set. But even 88 more large packaged items? such data can be put to good use by merchandisers and/or marketers.) Experienced merchandisers and available syndicated An initial pilot can help decide if there are strong rela- data can link some of the above behavior with consumer tionships exhibited by one’s customers that can be used types that have an overwhelming likelihood to exhibit that in such an analysis. When the analyses are conducted behavior. Depending on what percentage of transaction for thousands of customers, the insight generated is likely chains can be linked to certain specific demographic char- to show a reasonable statistical confidence level (due to acteristics, we can infer the dependability of the analysis. the minimized effect of individual preferences in a large sample size). A Process Such analyses can be simple, once automated based on Conclusion business rules. Virtual customer analysis avoids privacy infringement and provides insight similar to a loyalty program or other Business Rule 1 customer programs but, like them, does not address the Select demographic parameters that are to be derived entire consumer set. As a first step to enrich one’s trans- from transactions. Base this on experience or syndicated action analyses, this can provide significant ROI. For CPG, data available (or driven by demographic data that is such retail analyses could help identify segments served judged important or is purchased syndicated data). and validate other survey data. This may also help retention by identifying the Business Rule 2 types of customers who show declining behavior. Merchandisers cautiously attach one or more consumer Marketing efforts can then be geared to these profiles. attributes to specific products or behavior. This can be Everybody wins. ■ Chapter 6 hnologies. And big technology And hnologies. companies are

c s we enter the news we century, companies increas- will court consumersingly with an ever-growing set of te en with great technology at your fingertips, need be thinking to executives always me powerful technology under the hood. sing the Power of Three sing the Power sing technology and process – a better to can lead chain optimization supply The CEO of the Future The CEO The Hitchhiker’s Guide to the B-to-B Galaxy the B-to-B to Guide The Hitchhiker’s U The Shopping Cart Future A Remedy for Pain in the Chain Pain A Remedy for Ev of next steps. Razor-thin margins and value erosion margins the partners don’t intimidate and value Razor-thin up who make CP-Connect, that may be a model the future. an initiative for personalization include more customer The shopping and likely experience will so U and just the right inventory. partnersGlobal trading need a network speak in order all communicate to and to the same language. It is on its way.

er serve and retail CPG more demanding industries. There t 102 96 100 94 90 orming trading networksorming trading and improving their expertise to

f bet A The 21st CenturyThe 21st will be a newwill technology the shopper of for infrastructure the new century, where shopping carts are smart where and kiosks and electronic through the aisles. tablets point the way The 21st century is here. A Remedy for Pain in the Chain

Using technology and process optimization can lead to a better supply chain – with just the right inventory. The 21st Century Larry Kellam | Kellam Group Jon Stine | Intel Corporation

espite the billions that consumer products (CP) ■ Changes to business processes; Dmanufacturers have invested in supply chain mod- ■ A services-oriented approach to computing; and ernization, we’re still experiencing pain in the supply ■ New and modified applications to enable automatic chain. Bar codes and point-of-sale data don’t provide data communication and rules-based responses. enough visibility into product movement and consumer behavior. Even when we do have accurate data, siloed Linking trading partners in a collaborative business net- business information systems and yesterday’s analytics work, the digital supply chain replaces today’s linear make it too hard to use to have an impact on key per- supply chain and siloed business processes with a right- formance indicators. time, open-standards-based collaborative network. “Wait The symptoms of supply chain pain are everywhere. and react” yields to “sense, infer, predict and manage.” CP manufacturers keep an average of 11 weeks of safety Forecasting gives way to right-time demand planning. stock on hand, with seven weeks of inventory in retailers’ By moving toward the digital supply chain, you can warehouses and distribution centers alone. Despite the realize value in the near term, with only limited RFID data excess inventory, retailers worldwide average 9 percent and changes focusing on your own operational process- out-of-stocks. The Grocery Manufacturers’ Association es. Value comes through numerous incremental, quanti- says the typical GMA manufacturer experienced cus- tative improvements rather than a single big-bang result. 90 tomer deductions in 2001 equal to almost 10 percent of For example: sales. That’s $69 billion in lost sales annually for just the top 100 retailers.[1] Warehouse Optimization Those are serious problems – and the pressures con- For companies that have already optimized their distribu- tinue to rise. Consumers are more demanding, pricing tion/logistics systems, exchanging bar codes for RFID pressures more intense. Retailers compete with manu- readers may appear to do little more than add cost. In facturers and vice versa. Supply chains are longer and fact, non-line-of-sight data capture (especially in seg- more geographically distributed. The status quo is a pre- ments such as apparel receiving and distribution) may scription for failure. greatly speed cross-docking performance and accuracy. In a warehouse pilot of EPC/RFID, Gillette saw a signifi- Relieving the Pain cant increase in pallets moved accurately per hour. As a remedy for the pain in the supply chain, there is an Gillette has since realized productivity savings of 20 per- approach known as the digital supply chain. Using radio cent per distribution center in addition to improved prod- frequency identification (RFID) for automatic data cap- uct availability on retailer shelves for a total estimated ture, the digital supply chain adds four key elements: return on its RFID investments in excess of 25 percent.[2] ■ Synchronization based on globally accepted stan- Contributing to the impact: EPC/RFID enables additional dards such as the electronic product code (EPC) data capture points, so you can also expect to gain in standard; shipment accuracy and shrink reduction.

Larry Kellam is director of Kellam Group Inc., a company that provides EPC-specific consulting help, from preparing the EPC business case through testing and, ultimately, supply chain adoption. He is a 35-year veteran of Procter & Gamble, where he led P&G’s EPC efforts as the Auto-ID Center Board of Overseers representative. Jon Stine is the worldwide retail and consumer packaged goods industry marketing manager in Intel’s customer solutions group. Prior to joining Intel, he held senior sales and marketing positions in the retail-consumer products industry. Consumer Goods & Retail Report

Electronic Proof of Delivery would see a 2 percent sales lift and $18 million in addi- The 21st Century The GMA reported in 2001 that only 14 percent of the tional annual revenue. Fewer out-of-stocks and improved customer deductions charged to the manufacturers in its sales also lead to better return on trade funds and better study were ever collected from retailers; the balance consumer market share, which could boost sales. were written off. One in six deductions was a direct result of shortages or damages in product receipt. Big-box Product Life Cycle retailers estimate that advance ship notices are less than Procter & Gamble’s experience suggests that introduc- 80 percent accurate, so ASNs won’t solve the problem. ing a new SKU typically involves an inventory buildup EPC/RFID works like a real-time audit, offering accurate of roughly 33 percent. Increased information about inventory assessment at ship, transit and delivery. inventory can lead to optimized inventory levels, with Shrinking invoice deductions can recover an estimated fewer remnants and greater assurance that stock is on 0.75 percent or greater of sales directly into profits.[3] hand for national launch dates.

Consumers are more demanding … . Retailers compete with manufacturers and vice versa. Supply chains are longer and more geographically distributed. The status quo is a prescription for failure.

Using Information to Impact Inventory More information alone won’t do the trick. The digital As you move toward the digital supply chain, you achieve supply chain must include intelligent applications that additional value by combining EPC/RFID-enabled data automatically manage routine processes, highlight movement and analysis with automated data communi- exceptions and communicate results. Without those cation applications and changes to collaborative business applications – plus robust, flexible infrastructure to processes and rules. enable them and provide for flexible, secure cross-fire- 91 wall communications – automatic data capture just cre- Safety Stocks ates a bottleneck. More accurate product-demand forecasting leads to improved turns at the wholesale level. Calculating 11 Optimum Health weeks of average safety stock and a cost of 50 cents EPC/RFID and the digital supply chain offer a treatment per case per month to sit in a warehouse, the current plan for today’s reactive, linear supply chains. Together, “pain” amounts to a 5 to 6 percent markdown on every they provide both additional visibility into current busi- case. EPC-based visibility at multiple points along the ness processes and the ability to modify those process- supply chain, even at the carton level, can have a sig- es. The results include operational efficiencies, reduced nificant impact when combined with new analytics cycle counts, increased on-shelf availability and ulti- that analyze the velocity of product demand and the mately higher sales. But don’t delay. EPC/RFID has variability of that demand by SKU by store. a long lead time, and if you wait, the pain in the chain will only worsen and its consequences become more Out-of-Stocks life-threatening. ■ The increased information provided by even limited EPC/RFID data can make a significant dent in out-of- Endnotes stocks. An average top CP manufacturer has annual 1. This paragraph: GMA; OAT Systems 2005, Unisys Inc. 2004, sales of around $1 million for each Wal-Mart store. EPCglobal 2004, Gerry Jastremski of Gillette in RFID Journal, March/April 2005. Assuming 70 percent of out-of-stocks translate into 2. InfoWorld, “The Real Returns of RFID.” Aug. 9, 2005. lost sales (as ECR Europe has found), if such a manu- 3. RFID News & Solutions, “Attacking Invoice Deductions Through RFID,” facturer reduces out-of-stocks from 8 to 5 percent, it Jan. 2005. The future of retail and consumer products is here today ... and it runs on Intel.

onsumers are beginning to experience the store of that result in best practices that can then be leveraged transformed Solution enabler Cthe future ... a store. A store where throughout the industry. Our retail-consumer products shopping carts are so smart that they can locate products, industry team includes seasoned retail and consumer provide serving ideas and download your shopping list. products knowledge experts that understand And a store where shelves virtually restock themselves the industry and the technology. through a digital supply chain linked to suppliers, so that customers will always find what they’re shopping for. The Store of the Future — Today That’s what Intel is doing — we’re working with retail- As technology enables new possibilities in retailing, Intel ers, consumer products companies and leading technolo- is working with leading retailers to develop innovative gy providers to find new ways of making shopping easier ways to enhance the customer's shopping experience and more enjoyable. And we’re making collaboration and enable employees to respond faster and better with among stores, manufacturers and distributors so tight that information that’s accessible any time, anywhere. when a package of paper is bought for school, a tree falls in Imagine a store where communication to the cus- the forest. From the factory floor to the warehouse to the tomer can be customized at multiple points throughout store, Intel powers every aspect of the transformed store the store: point-of-sale displays that tell them how many and the digital supply chain ... allowing you to respond and points they’ve earned; or rich multimedia displays and adapt to challenges and opportunities faster. interactive kiosks that offer product information, help select wine or advise on dietary restrictions; or shopping Intel Helps You Run Your Business, cart tablets that download their shopping lists and direct Grow Your Business and Transform them to the location of specific products. Your Business By creating a distinctive shopping experience for each Intel is helping stores and manufacturers take advantage and every customer, these solutions increase customer of the emerging opportunities and meet the competitive satisfaction, brand loyalty and share-of-wallet for both the challenges with: retailer and the product manufacturer. Our technology — It provides retailers and con- Flexible Intel® Xeon™ processor-based servers sumer product manufacturers with the performance and deliver and update rich media content, while Intel wire- easy integration that makes tomorrow’s store and supply less networking technology makes the in-store network chain possible. Because it’s based on open standards, it’s flexible, cost-effective, easy to install and change. Mobile cost effective. And because it’s easy to expand and grow, tablet PCs and PDA devices based on Intel® XScale® your investment is protected. processors and Intel® Centrino™ mobile technology Extensive research and development — Our R&D keep employees on the selling floor and provide them yields products that help you serve your customers more with real-time, accurate information that allows them effectively. Terminals can process transactions faster and to know sooner, decide smarter and respond faster. can be serviced remotely. New security technologies pro- Intel helps create the store where your customer meets vide protection for sensitive information. Cost-effective the future. RFID technology transforms the supply chain for faster response and lower inventory levels. The Supply Chain of the Future — Today A global network of technology partners — From Imagine a supply chain in which all the partners — from consulting and integration to specific solutions to hard- manufacturers in China to shipping companies in Hong ware and software, Intel works with leading technology Kong to distribution centers in Amsterdam to stores companies such as Microsoft, HP, Cisco, SAP and around the world — share the same information at the Capgemini to provide innovative solutions and products. same time about the same products. Emerging technolo- Deep retail and consumer products industry gies, powered by Intel, are transforming traditional, linear experience — Intel works with leading retailers and supply chains into truly collaborative, networked digital consumer product companies around the world — like supply chains. The potential efficiencies, visibility and METRO Group, P&G and Staples — to invest in pilots near real-time collaboration provide advantages that are www.intel.com Solution enabler .intel.com www . ■ Executive Vice President Chairman of the Board Executive Vice President, President and Global Industry Manager, Retail- allowing you to create you to the future allowing g R. Barrett, an M. Maloney, an M. Maloney, aul S. Otellini, aul S. Otellini, hip maker, is also manufacturer a leading hip maker, ions products. Intel works with the world’s leading retail- leading the world’s with Intel works ers and consumer products solve firms to mission- business problems and transform processescritical with Intel® technology- based largest Intel, solutions. the world’s c networkingof computer, and communica- t Crai Services Officer Chief Financial and Enterprise Se Intel Corporation 2200 Mission College Blvd. Santa Clara, CA 95052 Phone 408.765.8080 www.intel.com Business Contact Jon C. Stine, Consumer Products Industry Sales Development Phone 503.677.5323 [email protected] P Chief Executive Officer Andy D. Bryant, ing the Future: Business ing the Future: t or more information, contact your Intel representa- or more information, or visit www.intel.com/go/retail. Intel’s technology expertise and solutions underlie F Building on Intel technology your infrastructure can er your operating costser your operating while it increases your busi- ea

the marketplace changes, leading retail leading changes, and CPG the marketplace

xibility at retailers employees to manufacturers, and alue and Strategic Advantage w e ve hallenges, leverage the opportunities leverage and createhallenges, ormed to provide shoppingormed to experiences customized ness agility — V ti these capabilities floor, in the back — on the selling line. and on the manufacturing office, in the warehouse As manage the to on Intel ally as a key firms are relying c competitive advantage. Cr The retail landscape are trans- as stores is changing f feeding become the stores chains and the supply demand-driven networks. Retail firms that and CPG recognize adopt the the opportunities and intelligently emerging technologies drive will the future. mobile technology the basis of mobile forms computing devices and secure mobilized that provide solutions fl receive them to allowing alerts, products track and better serve customers. lo your

con- to , and can ise and best practices rt pe ex ful, scalable servers based on Intel® Xeon™ r ful framework is both economicalful framework and adaptable, we r Through Intel® technology, XScale® expensive less Po In a digital supply chain, all participants all chain, In a digital supply gain a designing and implement- in the lead Intelhas taken Intel technology is helping companies realize the ential value of digital supply chains by creating by creating chains of digital supply value ential it can meet evolving business needs business both todayit can meet and evolving we t

cture-based servers costs mean operating lower olutions. Our globalolutions. network of relationships with retail- omers companies can competitive and pressures. Partner and Intel® Itanium® 2 processors intelligent enable of and management of the largeacquisition volumes by RFID applications and can powerdata generated the content delivery needed of the future. by the store The performance and cost-effectiveness of Intel archi- te while their expandabilityand faster ROI, ensures investment protection. RFID readers with the perform- are reaching the market productance and capabilities track to in real and time RFID applications possible. And as mobil- practical make business, Intel® Centrino™ changes ity fundamentally The Future Runs on Intel Technology Runs The Future Intel technology is at the heart of innovative retailing and because solutions chain the power- Intelsupply makes ful, flexible, cost-effective building of blocks of the store Intel products chain. the future and the digital supply are scalable, standards-basedthe reliable, components that meet to the grow- infrastructure an interoperable enable in the retail industries. This and CPG ing challenges po so the future. into ers, manufacturers, developers and standards bodies bring us to allows unprecedented, and will result in lower operating costs,unprecedented, operating in lower result and will greater agility market and higher sales. updated and demand view of supply stantly when and where it’s needed. access product information data improves decision making and allows More timely participants chain supply be more responsive to cus- to t more effectively on purchasing, much collaborate pricing and shipping, while improved visibility buy- customer into ing and shopping patterns of the optimization enables and merchandising promotions programs. trade firsting some of the world’s chain real-life digital supply s challenges. chain supply po agile, open, services-oriented architectures that a dynamicenable flow By turning data of information. executable information, actionable, accessible, into companies can increase efficiency operational across chain. the supply The Hitchhiker’s Guide to The B-to-B Galaxy

Global trading partners need a network in order communicate and to all speak the same language. It is on its way. The 21st Century Peter Jordan | Kraft Foods Sabine Ritter | Global Commerce Initiative

f you read Douglas Adams’ The Hitchhiker’s Guide to Kraft Foods, Metro, Procter & Gamble, Target, Unilever, Ithe Galaxy, you may remember the babel fish, a won- Wal-Mart and a number of other global companies com- derful creature. It is, literally, a fish that you drop into your mitted to implementing industry standards and providing ear and suddenly you can understand all languages in support for GCI working groups. the galaxy. The babel fish is on its way! The business-to-business galaxy of today is charac- Where does the GCI’s work fit into the supply chain? terized by the challenges of integrating business process- When looking to source a specific product, say a towel es and technology with global trading partners. The (in the Adams’ universe a towel is the most important emergence of the Internet has enabled new ways of com- thing you should carry), you will browse an online cata- municating; unfortunately, translators like the babel fish log to check product attributes such as origin, colors and are not readily available. measurements. This search requires a number of criteria A babel fish is, however, on its way. that clearly define the product’s identity.

The babel fish was of little use if you did not drop it in your ear. Likewise the GCI work is 94 of little use if not implemented in a globally consistent way.

For a number of years, industry initiatives have been How can I make sure the product is unique? To working to agree on a common business language for enable the tracking of a product, it is allocated a unique data communication along the supply chain. Already, a global trade identification number, which can refer to all large number of companies have adopted standards and related product information and be represented by a bar share best practices to streamline operations. There are, code that can be read anywhere in the world. however, still substantial barriers between companies, Recent developments in RFID tags, an alternative to countries and continents. bar codes, can significantly improve supply chain logistics, store operations, product authentication and shrink- Global Commerce Initiative age control. The emerging electronic product code will In 1999, the Global Commerce Initiative (GCI) was creat- take identification one level lower, allocating each prod- ed to improve the performance of international supply uct – in this case our towel – a unique number. chains for the benefit of consumers through the collabo- To ensure your search finds the right product, the rative endorsement of recommended GS1 global stan- GCI pioneered the development of a globally adaptable dards and the development of best business practices. product classification system, which is now part of the Board members include representatives from Ahold, GS1 standards.

Peter Jordan is director of international business-to-business strategy for Kraft Foods and a member of the GCI Board. Sabine Ritter is general manager for the Global Commerce Initiative. Consumer Goods & Retail Report

To enable you to order the right product (and receive important as ever. We are striving to make sure that all The 21st Century it), trading partners need to assure the integrity of master players in the supply chain recognize the importance of data prior to confirming transactions. The major chal- collaboration based on the exchange of open, free and lenges are in the process of being overcome, such as standards-based information. ensuring that the data shared with trading partners is Why is standard information flow so important? accurate and timely. We needed the catalog babel fish: In reality you will be buying more than a towel. In the an evolving network of interoperable data catalogs shar- business-to-business galaxy, millions of transactions will ing data in a standard way to satisfy e-business require- be taking place.

The choice of products, their colors, their availability in the store and price rely a great deal on the integration of processes along the supply chain.

ments. The GCI has developed the vision of the network The GCI recommendations and the endorsed stan- and is now fully supportive of the Global Data dards allow you to cope with millions of transactions and Synchronization Network. integrate processes and systems throughout the supply How do I know it will be delivered to the right place? chain. The automation of much of this information pro- The GCI is committed to the implementation of global cessing frees up time to deal with the supply chain excep- location numbers for an effective identification of parties tions. You concentrate your efforts in the areas of most and locations. The babel fish is, indeed, coming! need in a timely fashion. The babel fish was of little use if you did not drop it in Business Processes your ear. Likewise the GCI work is of little use if not And Communication implemented in a globally consistent way. This is the next 95 Ordering our towel triggers a string of events from dis- challenge: to get companies to drop a babel fish into all tribution to final payment, which can all be based on their systems. electronic data exchange. All master data is aligned The GCI companies are committed to the implemen- prior to transactions taking place, and messages contain tation of the endorsed standards and best practices, only transactional information. Based on business mod- because the objective is clear: “When I, the consumer, els that describe the core business requirements, data want my towel, it will always be there for me.” Borrowing definitions and data relationships, these models can be another suggestion from author Adams: Don’t panic! ■ converted into electronic commerce solutions, which remain independent of any specific message syntax To find out more about the Global Commerce or data structure. These messages are now part of the Initiative, contact GCI management at www.gci-net.org. GS1 standards. The choice of products, their colors, their availability in the store and price rely a great deal on the integration Supply Chain Links of processes along the supply chain. Collaborative work on joint planning and forecasting is one of the tools ■ Standardized product codes designed to help make this process smoother. This ■ Standardized product information process has suffered from the lack of the babel fish; data ■ Transactional master data ■ collection, exchange and forecasting have not been easy. Accurate data for trading partners ■ Global consistency As we see the emergence of new technologies and ■ Process collaboration information networks, the GCI sees its role as being as Using the Power of Three

Razor-thin margins and value erosion don’t intimidate the partners who make up CP-Connect, an initiative that may be a model for the future. The 21st Century Peg Donovan | Hewlett-Packard

artnerships formulated to help businesses run better ■ Radio Frequency Identification (RFID), to address Pand respond to market needs faster are delicate inventory and distribution management and help CP dances. In consumer products, the margins are so slim customers increase product availability while that it would seem a miracle that companies providing decreasing costs and improving stock availability strategic advice, services and IT solutions would join using technology; together. Such an endeavor just may be a model for how ■ Enterprise Resource Planning Connect, to companies can form a new kind of alliance based on increase internal and external integration, based on clear business goals and aided by cutting-edge technolo- the customer’s current ERP backbone and new devel- gy. Recently, Hewlett-Packard, Capgemini and Intel have opments in the ERP area; cooperatively united to introduce CP-Connect, an initia- ■ Customer Profitability/Business Intelligence, to tive designed to assist consumer products companies increase the profitability of customer and trading increase agility, respond to customer demands more channels by better understanding the most profitable way to sell products to customers – direct, through a retailer or over the Internet; CP-Connect Aims: ■ Global Data Synchronization, to improve the data foundation for efficient manufacturer/retailer collabo- ■ Fulfillment streamlined ration; and 96 ■ Trading partner collaboration ■ Mobile Customer Relationship Management ■ Innovation with customer in mind solutions, to improve the effectiveness of the field staff. quickly, drive down costs in their supply chain and improve profitability through their distribution and retail Addressing Connection Areas network. The new program uses a wide variety of tech- CP-Connect tackles three main connection areas for nologies available with partners today to aid business CP companies – the fulfillment, trading partner and efficiency and profitability. consumer connections: CP-Connect focuses on addressing critical issues such ■ The fulfillment connection is all about establishing a as value erosion and margin pressure by helping con- differentiated supply chain, with increased product sumer products companies improve the links with their ful- availability against lower supply chain costs (e.g., fillment and trading partners, as well as with consumers. lower inventory and distribution costs). The initiative addresses critical challenges in the con- ■ “Right balancing” the relations with trading partners sumer products industry through: is the best way to survive the squeeze of price wars, ■ Product Life Cycle Management, which enables private label growth and discounter expansions. product innovation and allows the customer to deliver The trading partner connection concentrates on better products more quickly; a collaborative go-to-market strategy and covers ■ Trade Promotion Management, to help a customer topics such as trade promotions management, data turn trade funds into additional revenues; management and sales and service management.

Peg Donovan is responsible for marketing and communications for the HP manufacturing industries team, focusing on pharmaceutical, energy and CPG. Consumer Goods & Retail Report

■ In the end, it is the consumer that really counts. center on HP’s experience as a major manufacturing The 21st Century Consumers have different shopping needs at company that shares its knowledge with retailers. different shopping occasions, and these are not just As an early adopter of RFID technology, HP deploys about price. The threat of value erosion can best be RFID solutions in key areas within business divisions addressed by innovation and differentiation – based across its global supply chain. In addition, HP has on the context of the product (and not only the con- made investments in RFID both as a participant in tent). CP companies must “organize to innovate.” global standards organization – including EPCGlobal – and through its own work at HP Labs. This improvement and differentiation of business per- ■ Intel’s (open-standards) technology contributes formance in each of these three areas can be achieved to more flexible solutions to help consumer through the application of best practice business products companies take advantage of top tech- and technology solutions that realize concrete busi- nology advances. ness benefits. The partnership of HP, Capgemini and Intel repre- It is a well-known fact that consumer products compa- sents a collective vision, architecture, set of solutions and nies are facing value erosion and margin pressures. CIES ecosystem that combine the expertise, resources and – The Food Business Forum, an independent global food deep sector-specific knowledge of all three companies. business network serving retailer and supplier member

In the end, it is the consumer that really counts. Consumers have different shopping needs at different shopping occasions, and these are not just about price. The threat of value erosion can best be addressed by innovation and differentiation.

Each of the three companies has a specialized contribu- companies – ranked “competition” as the leading issue in tion to make to the CP-Connect initiative: its Top of Mind 2005 annual survey of major issues as ■ Capgemini provides strategy, implementation serv- rated by food business executives in 65 countries. It noted ices and resources and collaborative methods and that “manufacturers are seeing their margins squeezed tools such as the Accelerated Solutions Environment. by higher commodity prices and lower shelf prices.” It’s ■ HP brings to the mix its capabilities in infrastructure no surprise that partnerships such as CP-Connect aim to services and solutions, as well as manufacturing and make companies strong competitors. By leveraging their retail expertise, including its own expertise in manu- combined strengths, the partners that make up CP- facturing and retail solutions. These solutions include Connect can help manufacturers use technology innova- supply chain optimization, product life cycle manage- tively to serve their customers better and improve their ment, global data synchronization and RFID, and they overall business performance. ■ IBM’s Consumer-Driven Supply Chain Solutions

oday’s retailer and consumer products companies our closest ISV partners – SAP, Manugistics, EXE,

Solution Provider Tface multiple challenges: Manhattan, Alien and many others – to offer a compre- ■ An elusive and rapidly polarizing consumer base will- hensive set of full life cycle solutions to our clients, in the ing to spend top dollar for new luxury items while following areas: simultaneously demanding low-priced basics; and 1. CDSC Strategy Services – These strategic consult- ■ Suboptimized supply chain models that are simply ill- ing services help retail and manufacturing executives equipped to meet the rapidly evolving demands these understand the big picture, from the business oppor- new consumers represent. tunity that the consumer-driven supply chain represents for their specific enterprise to viability of newly To meet these challenges, retail and consumer products available technologies within their environment. leaders are beginning to build specialized supply chain 2. Business Process Offerings – This includes an models that are fast, responsive and low cost, all with array of discrete offerings from the most basic and a laser focus on meeting consumer demand; in other tactical to the more strategic and leadership-focused: words, they are developing supply chains that are • Accelerated innovation – Processes and appli- consumer-driven. In contrast to traditional, generic cations designed to help manufacturers develop supply chain models, consumer-driven supply chains are accelerated product life cycle management “fit for purpose” to meet the buying characteristics and capabilities, from translating a change in con-

Consumer-driven supply chains are “fit for purpose” to meet the buying characteristics and expectations of the consumer, and characterized by a high degree of visibility and responsiveness, collaboration and integration with new technologies such as RFID.

expectations of the consumer, and are characterized by a sumer purchase behavior into a new product high degree of visibility and responsiveness, collaboration concept, through design and development, and and integration with new technologies such as RFID. finally the arrival of the new item on the shelf. While many retail and consumer products leaders • Sourcing and procurement – Help in minimiz- are beginning to embrace this concept, they struggle to ing spend and getting the best deal when buying define the path forward. Broad industry initiatives like raw materials, components and finished goods, global data synchronization, CPFR and RFID compete while streamlining the process of buying to mini- for attention and cloud the central question: Where can I mize purchasing costs. invest to get the most tactical benefit, while positioning • Consumer-driven replenishment – Optimized for long-term competitive advantage and ROI? supply chain planning processes that tie replen- IBM recognizes this challenge, and through our ishment to consumer demand to improve prod- consumer-driven supply chain (CDSC) solutions uct availability and better meet the needs of the stands ready to support its customer executives as they consumer. address these questions and transform the industry. At • Operational excellence – Fast, flexible and effi- the core of the CDSC strategy is a comprehensive, flexi- cient supply chain execution processes, such ble solution framework designed to deliver rapid ROI as warehousing and transportation, that enable while providing a road map for the future. The solutions agile responses to changes in consumer demand, combine all of the key capabilities of IBM with those of more reliably and at a lower cost. Solution Provider • Product quality and compliance – A toolkit enabling retailers and their manufacturing partners to meet increasingly onerous product quality requirements by tracking and tracing regulations At IBM, we strive to lead in the creation, from trading partners and governments (in development and manufacture of the indus- development). try’s most advanced information technologies, including computer systems, software, 3. Process Enablers – Cutting-edge technologies that networking systems, storage devices and will serve you today and tomorrow: microelectronics. We translate these advanced technologies into value for our • RFID – A powerful enabling technology that customers through our professional solu- promises to streamline the supply chain and ulti- tions and services businesses worldwide. mately transform the retail ecosystem. Samuel J. Palmisano, Chairman of the Board • Enterprise data management – A set of tools and and CEO capabilities for aggregating, managing, sharing Michael E. Daniels, Senior Vice President, Technology Services and synchronizing product information both within Nicholas M. Donofrio, Executive Vice President, the enterprise and with trading partners. Innovation and Technology

• Trading partner integration – A collaborative Doug T. Elix, Senior Vice President and Group trading partner portal that provides a single Executive, Sales and Distribution window through which trading partners can International Business Machines Corporation access the full range of collaborative supply New Orchard Rd. Armonk, NY 10504 chain processes required to break down function- Phone 914.499.1900 al boundaries. www.ibm.com/software/solutions/LE/LD06/ solutions_overview.html 4. Enabling Infrastructure • IBM Software – WebSphere® suite of process Business Contact David McCarty modeling and simulation tools, WebSphere Global Program Manager, Business Integration software, role-based portals, Consumer Products Consumer-Driven Supply Chain DB2® data management tools, Tivoli® systems Phone 812.594.2222 management tools. [email protected] • IBM’s hardware platforms – including the Intel- based xSeries and BladeCenter systems. 50 percent market share and has been the leading 5. IT Service Capabilities – All the help you need to vendor for 13 consecutive quarters. (Source: IDC Q1 ’05 make it work: infrastructure strategy and planning, Server Tracker.) network consulting, system integration and testing, IBM’s Intel-based server offerings include: system management and maintenance, IT support ■ BladeCenter solutions – This modular design inte- and helpdesk and business resilience. grates servers, storage and networking into cost- effective, high-density enclosures that support IBM and Intel – hot-swappable, high-performance two-way and Collaborating for Your Success four-way blade servers. IBM and Intel work closely together, and in concert with ■ High-performance servers, such as the new IBM® key ISV partners, to bring Intel technologies to retail xSeries® 460 and 366, that accommodate up to 32 business solutions and to help our customers implement dual-core processors. These are ideal as back-end these solutions. database servers or to host multiple applications in IBM’s xSeries and BladeCenter servers are based a virtual server environment. on Intel® Xeon™ Processors and run Windows- and ■ Rack-optimized xSeries servers like the IBM Linux-based applications. They deliver enterprise- xSeries 346, 336 and 306. These uni- and dual- class scalability and availability at very attractive processor rack-dense servers help solve data center prices. Add to that rock-solid IBM support, and space constraints with compact designs that don’t xSeries and BladeCenter are a good choice to run sacrifice performance or manageability. supply chain applications. ■ Tower xSeries servers such as the IBM xSeries 236, IBM/Intel BladeCenter collaboration drove leader- 226 and 206. These uni- and dual-processor servers ship in Blade servers to 38 percent of market segment deliver innovation and usability at entry-level prices share , and in eight-way servers IBM has greater than for small businesses or distributed computing. ■ The Shopping Cart Future

The shopping experience will likely include more customer personalization and some powerful technology under the hood. The 21st Century Eric Reyes

s you have read across this volume, the shopping some of it very noticeable, some of it in the back office. Alandscape is on the threshold of profound change. Kiosks and electronic tablets will soon be able to Grocery shoppers, for example, operate a lot differently guide each shopper’s store experience. Promotions than they did even 20 years ago. They are more likely to can be displayed there; the shopping list you entered visit the store many times per week instead of making the on the store’s site at home can be downloaded to the traditional once-per-week stock-up visit. Also, grocers tablet; detailed directions can lead you right to the have seen intense pressure from large box stores – Wal- spaghetti sauce. Mart is now the biggest seller of groceries. In the back, technology will keep inventory lean and For a perfect future in consumer goods and retail mean. Radio frequency identification (RFID) will track to emerge, there will be great demands on technology. everything from pallets on the dock to a jar of jam as it Not just shopping on the Internet. Yes, the original virtual goes from the bottling plant to the shelf to the cart to the grocer, Peapod, is still around, even though Webvan’s home. More powerful networks and partnerships dreams never materialized. Safeway has seen some between technology providers will lead to seamless sup- success with its online shopping site. But overall, Internet grocery shopping is still a very niche activity. What technology companies are outlining for the The Perfect Shopping 100 whole consumer goods industry is personalization. Experience Includes: More than anything else, customizing the shopping experience in the store will be the crown jewel in the ■ Kiosks first decade of the new century. And, as you’ve also ■ Downloadable shopping lists ■ Pushed promotions via electronic tablets read here, large technology companies such as ■ Instant stock replenishment Hewlett-Packard, IBM, Intel, Microsoft and SAP are ■ Targeted customer service committed to the kind of R&D and practical innovation ■ Smart shopping carts to make it happen.

Scanners and Planners ply chain improvements, from the drafting table to the It’s been almost two decades since the first President manufacturing floor to the stores. Bush marveled over the grocery shopping scanner – With all the press RFID has received it may be impos- a tool that had already been in use for several years. sible to match the hype in practice. Adoption of RFID Currently, the hardware that helps us shop is on full may not be as swift as companies would like, but is still display – UPC scanners for customers to check prices on track to inspire process adaptation at retailers and themselves, self-checkout stations, credit and gift card manufacturers. In fact, makers such as Alien Technology readers at checkout and inter-store networks to track recently cut the price of its RFID tags by 44 percent to inventory availability. help provoke adoption. Analysts believe another cut by What consumers will see more of are improve- half in the price is what is needed to really send the tags ments to their personal shopping experience – flying out the door.

This Time, It’s Personal Far Away, So Close The 21st Century The perfect future wouldn’t be perfect without customer The future is very close. Some companies would say it service, and that is also the watchword at stores and at is already here. As adoption of technologies proliferates, technology providers. Katz Foodtown of New York, so does the good will and excitement stores and CPG for example, uses a hybrid of tech and manager interac- companies are experiencing. Times are still tough, but tion to cater to high-spending customers. When the at least companies are starting to acknowledge the customer’s loyalty card is read, a signal – literally an road ahead. The fact that Albertson’s stores have been alarm – is sent to the store manager’s beeper. He sees on the auction block for so long signifies that supermar- immediately on the beeper’s screen the location of kets have learned their lesson from the mergers of the the shopper, the shopper’s name and what they have last decade. spent recently at the store. The manager chats with With margins so thin, an important mandate for CPG the customer and finds out what they didn’t stock and and retail companies is to aim at their best customers. promises they will have it next time. The one-on-one Those enrolled in loyalty programs already have seen interaction practically guarantees the customer will the immediate result of membership: price advantage, return. It’s a wonderful use of what might be considered a degree of personalization and targeted coupons. In

The future is very close. Some companies would say it is here. As adoption of technologies proliferates, so does the good will and excitement stores and CPG companies are experiencing. an outmoded technology – the beeper – augmented the future it will be easier to treat every customer as if by the human touch. they have been in your loyalty program for years. With It is also a soldier’s-eye view of CRM that is personal, the ability to move and analyze data at a much faster rate, proactive and uses technology. Companies producing the buying patterns of even a first-time customer can be 101 the underlying technology believe CRM that relies on compared to similar long-time patrons, and predictions content management systems or campaign manage- can be made as to what they need. It will be like reading ment tools can help touch many consumers with the right their minds. message. With competition so great, stores must profile As shoppers spend more time in stores, more fre- and satisfy customers from disparate income groups with quently, there will be many opportunities to “show” the greater and greater speed. They must provide tools to consumer your vision. Even with the competition from help include data analysis software, faster servers using stores that had never traditionally sold groceries, it just more powerful processors, shortened turnaround times means that the blurred lines can lead to windfalls for the resulting from collaboration software and better financial companies that can wow customers one at a time every modeling dashboards to trim down everything. time they enter the store. ■

Clicks or Bricks?

While online shopping in general continues to grow, there are still shoppers who begin to shop online and never finish. The so-called abandoned shopping cart syndrome is most prevalent on the Web. (How many people enter stores, fill up a cart and then just leave without completing their purchase?) According to recent reports, in 2004 abandoned online carts increased by 24 percent to nearly 60 percent of all shopping visits – that’s six out of 10 people coming into your store, filling their cart and then, for some reason, simply not completing their purchase. And they aren’t coming back. Online shoppers who leave without making a purchase are not returning to shop again to the tune of six out of 10. That’s about $4.50 of lost revenue for every dollar actually spent. However, the average online order shot up 15 percent to about $130. And those who regularly shop online are doing it faster and better. They are viewing more pages and spending only about 29 seconds per page. Yet their overall shopping sessions remain the same. If only everyone could move their carts through the aisles that fast. The CEO of the Future

Even with great technology at your fingertips, executives always need to be thinking of next steps. The 21st Century Eric Reyes

he future isn’t here. While some improvements in Executive Decisions Tconsumer goods and retail strategies have spurred Today’s executive must wear many hats. She must be a growth, there are still things to be done. In fact, if you leader and able to speak fluidly about what the company invested in the top consumer goods companies a decade can do and will do, but also – in the wake of that lumber- ago, you’d be getting about a 12 percent return on your ing boat, compliance – be a financial guru. Increasingly, investment. Not bad. But that run may be over as compa- the CEO must also be the CIO, even if she has someone nies struggle with how to make their products and stores in that role. more relevant in a virtual world. One of the steepest learning curves in the executive The future is here in front of us and just a little out of manual is the need to understand technology. With so reach. Some companies have a hold of the coattails and much of your back office networked and with the advent that’s great, but there are still fundamental executive of email and dashboards, executives need to know the decisions to be made. potential. You shouldn’t have to know personally how to

Today’s executive is must wear many hats. She must 102 be a leader and able to speak fluidly about what the company can do and will do.

Collaboration rebuild an engine, but you should certainly know what It is becoming clear that companies need to collaborate needs fixing when you open the hood and have a few more with their trading partners, suppliers and, yes, ideas about how to make a better engine. their customers. The manufacturing floor will benefit Even if your company doesn’t make technology, exec- from streamlined processes and some agile software utives need to comprehend the value and working parts of to help model the costs of production before companies the software they deploy and even the hardware in place. commit to new products. Across geographies collabora- This may be the single biggest deficit consumer goods tion will become important to any company doing busi- executives take into the office: They rely too much on an ness, importing or building products in other countries. IT officer to tell them what to buy and how to position it. As it becomes more attractive to reap the benefits of having products made in far-flung nations, you will have to Adoption rely more and more on the power of collaborative soft- Slow adoption of emerging technologies and business ware and initiatives. trends can have disastrous effects. For example, look at

Let’s Get Small

As you run your company there might be a small lesson to be learned from the little guys. More very small mom-and- pop retailers are going with a slow- to no-growth policy. Some of these retailers are setting a growth goal – say 25 percent – and then simply capping it. Anecdotally, they say their current profits are really all they need to make a comfortable living – why ask for trouble? Now, scale that to a much larger company. The message is not to turn away potential profits – but simply to step back and evaluate before biting off more than you can chew. The smaller retailers know that maintaining quality becomes more difficult as you get larger. For some mom-and-pop stores, quality and attention to detail are their strongest selling points. For larger stores, the challenge is to control costs. Thinking as if you were small is one way to rein in costs or to apply resources to emerging markets. Some insights from the small-store mindset: ■ Instead of opening more stores, be selective; ■ Follow the leaders – open your coffee shop next to a Starbucks; ■ Examine your employees’ quality of life; and ■ Don’t try to make a niche product a mainstream one.

the glory days of the merger when so many CPG compa- good, especially in countries that already are primed for nies decided that marshalling their products into a few your goods. Nowadays, you need more than just selling core offerings would make them leaders. Companies your hard goods to make it. Some companies are using bought competitors in regions they weren’t in and in outsourcing more and providing more services to go with some cases reduced their categories threefold. Then some of these companies went global, and in doing so overextended themselves. Some Noteworthy Now, radio frequency identification (RFID) tags are Executive Decisions: being touted as the next technology that will usher in a truly streamlined supply chain. Shopping giant Wal-Mart ■ Conscious slow growth or no growth has a very strong RFID initiative and is pushing all its sup- ■ Splitting your distribution networks into hot 103 pliers to convert to RFID soon, but there is some resistance sellers and average sellers ■ Using data mining to target a multitude of – mainly on price. When the tags reach a certain price categories at a single buyer point they will take off. As an executive, should you wait for ■ Brand extension into services the price to drop, or should you plan for detailed execution this year? How you answer that may say a lot about whether your company values technology adoption. their products. Some are even taking up product categories they feel have been ignored for too long. Productivity Hell As you don your many hats, it is wise to keep your eye How are you going to grow the company yet reduce costs on the capabilities that set you apart: and keep your gains in productivity? Executives have been ■ Refining how your brand is perceived; wrestling with this for some time. At first, companies out- ■ Your salesforce; sourced and then centralized the supply chain. Seeing gains ■ How you can always improve your supply chain; and come on, they finally closed plants. They upped productivity ■ Coming up with new products. but soon discovered they had to put the boon back into expansion. So they expanded internationally, but some of In the world of consumer goods it is wise to be as fast as those savings were not repeated in subsequent years. you can – even borrow from the best of other industries – Analysts suggest that staying with core purposes is a and to devise your products to meet local needs. In this good move. Since you have the scale and are present way the future becomes clear, and with it the benefits of internationally, better servicing those markets is also prosperity and value. ■ Chapter 1: Tools & Technologies

Chapter 2: management strategies Sponsor Index

Chapter 3: manufacturing

Chapter 4: marketing

Chapter 5: satisfying customers

Chapter 6: the 21st Century

Acsis ...... 22 Interactive Edge ...... 4

Brickstream ...... 81 itelligence ...... 33

Business Objects ...... 28, BC Logility ...... 49

Cartesis ...... 16 Ogilvy & Mather ...... 60

DataUnison ...... 35 OgilvyOne ...... 76

Fair Isaac ...... 68 SAP ...... 44

Grocery Shopping Network ...... 87 S&H Solutions ...... 83

IBM ...... 98 UGS ...... 13

Intel ...... 39, 92 Unica ...... 64