Consumer goods manufacturers are awash in data, and yet they lack the ability to consistently provide insights to their retailer partners. As they look to 2008, they will need to consider how analytics can provide the market insights to guarantee their relevance in the eyes of retailers and consumers, as well as an ongoing seat at the table.

• Manufacturer perceptions about their analytical capabilities relative to their competitors are inflated.
• Understanding and controlling the store shelf is an ongoing battle between manufacturers and retailers. Retailers, however, are winning.
• Accelerating the product development process through "fast fashion" offers apparel, footwear and accessories (AFA) manufacturers a competitive advantage through the use of product-life-cycle-enabling technology.

• Once your customer-facing processes are enabled with technology, focus on being able to better analyze and predict outcomes.
• Convene a radio frequency ID (RFID) council with the appropriate representatives from across the enterprise to drive responsibility for RFID initiatives into the organization and into individual objectives.
• Start evaluating product life cycle management (PLM) capabilities against your primary product development pain points to begin identifying the basis for return on investment (ROI).

This report focuses on identifying opportunities that will occur or emerge in the near future. Although the predictions do not span all areas of consumer goods (CGs), they are the ones Gartner believes offer competitive advantages or are necessities for long-term growth and viability.

Retailers are looking to manufacturers to improve the analysis and insights in support of category decisions — otherwise, retailers will develop these skills in-house. Manufacturers are looking to direct POS to help provide a real-time view of current performance, rather than waiting for syndicated data. Both aspects are affecting the role of analytics and increasing the need to use analytics effectively. Retailers are also demanding decreased time to market for innovative new products. As manufacturers' margin pressure continues to grow, this will help drive more-cost-effective product development.

Retailers looking to further reduce supply chain costs and to increase visibility are looking to manufacturers to adopt pallet-level RFID to be one of the key enablers, not just an interesting pilot scheme. Manufacturers are fighting to retain control of space management and maintain their influence in the face of retailers growing centralized control of space and assortment. These challenges demand changes in business practices and the use of IT resources to identify risks and opportunities in real time, as well as the agility in operations to exploit competitive advantages.

Strategic Planning Assumption: By 2009, manufacturers will face pressure from retailers to improve their analytical capabilities or "lose a seat at the table" for influencing category decisions (see Note 1).

Key Findings: CG manufacturers have not invested on parity with retailers in category management or in analytical tools. In particular, they have fallen behind in obtaining predictive capabilities. As a result, retailers are finding less insight coming from manufacturers. Additionally, manufacturers seem to overestimate their analytical capabilities, sharing the unfounded belief that they are significantly better than their peer group.

Market Implications: CG manufacturing companies will need to invest to improve their analytical requirements. Purchasing online analytical processing (OLAP) capabilities is not enough. They need to be more proactive through predictive modeling capabilities. Some larger manufacturers may even lose their positions as category captains. Less significant manufacturers will be able to remain relevant in analytics to the degree that they can provide consumer, market or other retailer-specific insights that are not known to the retailer.

Recommendations:

• Conduct realistic benchmarking against peers. Brokers or sales agents can help, because they have a broad perspective in the market from both sides.
• Migrate off of spreadsheet applications to those that are server- or Web-based and can facilitate data load and analysis by a broader team of appropriate people.
• Ask retailers how they see the collaborative dialogue evolving and what the platforms will be for collaboration. Plan accordingly.
• Evaluate predictive modeling optimization capabilities to harness the power of available data and spend more time gleaning insights and preparing for the future and less time reporting the past.
• Evaluate out-of-the box category management solutions. Don't attempt to build one. We've seen very little success in this area. You're a manufacturer, not a software company.

Related Research:

"Manufacturer/Retailer Beliefs About Analytical Abilities Underscore Need for Increased Dialogue"

"Nielsen Offers Most Complete Strategic Information for Consumer Goods Manufacturers"

Analysis By: Dale Hagemeyer

Strategic Planning Assumption: By 2009, PLM platforms will be adopted by the majority of leading apparel, footwear and accessories manufacturers to enable innovation and drive global product development.

Key Findings: Retailers are increasing the pressure on AFA manufacturers to innovate and are driving the need to design the right products quicker, as part of a move toward fast fashion. Capturing the consumer's attention and retaining it are key drivers of product innovation.

At the same time, globalization is driving the need for improved collaboration, both internally and externally, across the entire supply chain. Increasing competition and pressure on margins is also forcing improved product development productivity, while reducing costs.

Market Implications: AFA manufacturers that lack an effective PLM strategy to enable the various challenges of the product development process will find it increasingly difficult to compete. Competing in the global marketplace is not manageable without tools to facilitate the development of new products focused on local markets and leveraging successes globally to support brand value. Traditional manual approaches to product design are migrating to more-structured business processes that are centrally managed and controlled.

Best-practice Web-based business processes are replacing paper documents by establishing a central database approach, workflow and alert management, and integrated planning capabilities. Combining computer-aided design (CAD)/design tools with all the information required to produce comprehensive tech packs and collaborating over their creation and maintenance is changing the way that trading partners combine their efforts to swiftly design new products.

Recommendations:

• Businesses should map out current product development and management processes and assess where adopting best-practice business processes would strengthen the approach.
• The scope of PLM functionality varies with each vendor's solution. Businesses with significant pain points should focus on solutions that address their priorities.
• Businesses should adopt product platforms with a modular approach so that initial challenges can be addressed and a foundation can be created for later enhancement.
• Businesses and IT should jointly evaluate PLM solution opportunities to coordinate product development across global supply chains.
• Businesses should collaborate with strategic retail partners on developing exclusive or custom items for their assortments, which will illustrate their ability to innovate and hence differentiate.

Related Research:

"Fast Fashion Demands PLM"

"Product Life Cycle Management Delivers Cost, Quality and Time Benefits to Apparel, Footwear and Accessories Manufacturers"

Analysis By: Peter Bambridge

Strategic Planning Assumption: By 2011, RFID will be adopted at a pallet level across global supply chains in response to retailer edicts and strong market influences.

Key Findings: Retailers' RFID initiatives and edicts will combine to encourage CG manufacturers to adopt the use of RFID on pallets. The resulting improved visibility will provide the retailer with a deeper level of consumer awareness and help to further improve the shopping experience.

It will also provide an opportunity for collaboration, resulting in increased efficiencies and improved service levels for the consumer by avoiding out-of-stocks on the sales floor. This will require additional IT investments and responsibilities for CG companies in adopting RFID into the supply chain and will provide some benefits.

Retailers will need to share additional information, such as the improved demand signals, for further benefits to be realized. Solution providers currently working with CG companies on these initiatives include CHEP, Accada, IBM, T3Ci, OATSystems and TrueDemand Software.

Market Implications: CG companies that succeed in improving collaboration with retailers to facilitate execution at the retail store level will have competitive advantages in terms of in-stock levels, resulting in improved sales and consumer satisfaction. Like category management collaboration initiatives, this will give CG companies a method to differentiate themselves by delivering extra value to key retail customers and ultimately better service to consumers.

Additional benefits include reduced inventory levels by having the right stock in the right place at the right time, reduced shrinkage and, hence, improved margins. New product introductions and promotions can also benefit from increased visibility and analysis of new data feeds. In addition to investment, the new RFID approach will require changes to business processes, and provide new opportunities for real-time alerts and a more predictive modeling approach.

Recommendations:

• Businesses should identify the specific data that is generated by RFID-tagged pallets and how analytics can be applied to this data (delivered by retailers) to deliver actionable insight into the supply chain.
• Businesses should collaborate with key retail partners on improving key metrics, such as out-of-stock positions and promotion performance, to ensure focus on realization of mutual business benefits.
• Enterprises should establish a broad-based internal team to identify RFID opportunities and to gain a clear understanding of the development and support requirements.
• IT should identify potential solutions that leverage RFID data to improve decision making by taking advantage of alerts, workflows and exception management to minimize the data volumes handled.

Related Research:

"Benchmark Your Retail Supply Chain RFID Strategy"

"Market Share and Forecast: Radio Frequency Identification, Worldwide, 2005-2011"

Analysis By: Peter Bambridge

Strategic Planning Assumption: Through 2008, direct POS will be used by most all CG manufacturers as syndicated POS data is used today, because of the increased pressure to capture more real-time information.

Key Findings: Dominant players currently don't exist. There are numerous niche providers and low barriers to entry. Current service providers include Blue Agave Software, Decisions Made Easy, Oracle, Relational Solutions, VeriSign, Vendor Managed Technologies and Vision Chain. Direct POS benefits sales, supply chain and marketing functions by providing rapid visibility (usually a one-day lag) into retail conditions such as product availability, promotions, inventories and seasonal product sell-through.

Market Implications: The need to understand and react to this information is rapidly becoming a competitive advantage for manufacturers that can do so. Examples include being able to react to product out-of-stocks, promotional irregularities or end-of-season inventory builds with a 24-hour lag instead of several weeks.

There was a time when CG companies that had the ability to understand traditional syndicated data could extract a competitive advantage. However, these data sources are now the status quo, and it takes weeks to send this data. The market is moving closer to real time, and CG companies that make the move to direct POS data capture will gain a competitive advantage. However, cooperation from retailers is required, meaning they must be willing to share the data.

Recommendations:

• Don't wait. Start evaluating direct POS capabilities now.
• Carefully consider whether you want to try to build these capabilities yourself. It is an onerous task and requires experience to gather, cleanse, remove duplicate records and make the data available. We see very few CG companies doing this, and many implode over time before moving to outsourcing.
• Start with your key customers. Select solution/service providers that already have expertise in handling the data from your key retailers.
• Focus on user tools. If you have a company-standard analytical package, see if one of the vendors can run the data through that package. Without the right analytical tools, the value of the data will not be maximized.

Related Research:

"Making Sense of Direct Point of Sale Options in the Consumer Goods Industry"

Analysis By: Dale Hagemeyer

Strategic Planning Assumption: By 2009, Tier 1 grocery retailers will use automated store-level assortments to drive centralized space management and take control away from the CG manufacturers that currently provide these services as part of their differentiation.

Key Findings: Identifying the ideal assortment of products for a specific store, based on its actual sales history, trends and other attributes (such as location and shopper demographics), has long been the aim of many retailers. Migrating from averages-based template selections of products and space management layouts to locally tailored assortments displayed to maximum effect has been shown to deliver significant sales and profit growth through reduced out-of-stocks and lower inventory levels.

In response to this aim, major grocery retailers are accelerating the adoption of a new generation of centralized space and assortment planning solutions. These solutions have been developed to make store specific planogramming a reality as processing power, application intelligence and data availability have all advanced. Meanwhile, the resources required to run such solutions have declined significantly. As these systems are adopted by retailers, there are major implications for CG manufacturers.

Current solution providers include Galleria and SAS Institute.

Market Implications: The need to get to a more-local assortment and a store-specific planogram is rapidly becoming a competitive advantage for retailers. As a result, the adoption of store-specific assortments and planograms is predicted to grow and lead to CG manufacturers losing control over the space management process.

During the past 15 years, CG manufacturers have assisted retailers with the creation of assortments and planograms as an extension of the retailer's team, either through category captaincy or through close working relationships. In doing so, leading CG manufacturers have taken on analytical work that leverages their extensive consumer insights and data.

However, these methods, which are used to influence the presence and positioning of CG manufacturers' products, will be replaced by impartial business rules that are driven by pre-defined commercial objectives that my no longer favor specific brands. For example, one week's worth of stock on the shelf may no longer deliver the facings that leading brands have become accustomed to securing on the planogram. This "fairer" approach will lead to a reduced need for space planning and analytics resources in the CG manufacturers' retail account teams.

Recommendations:

• CG companies should assess the potential impact of retailers' adoption of store-specific assortments and planograms on their own business (that is, reduced facings, reduced on-shelf inventory and reduced/delayed orders).
• CG company account teams must understand the capabilities of this new breed of retailer solution and identify strategies to counter the threat.
• Businesses should work with key retail accounts to demonstrate their value and to maintain involvement in setting templates and business rules for the ideal planogram layouts, and contributing to the business rules that will drive the process.

Related Research:

"Retail Assortment Planning Technology Enters a New Generation"

Analysis By: Peter Bambridge

In response to your requests, this year we are taking a look back at a few key predictions from previous years. We have intentionally selected predictions from opposite ends of the scale — one where we were wholly or largely on target — as well as one we missed. The on-target prediction continues to be true as both Oracle Siebel and CAS distance themselves from other field sales suite vendors such as SAP. In particular, their new predictive analytics capabilities are a differentiator. The statement about best-of-breed vendors staying relevant in retail execution and category management also continues to be true. We ascribe this to that fact that all the point solutions selling these capabilities account for about $30 million in revenue. Therefore, the suite vendors haven't seen this as an attractive enough market as compared with larger and more-urgent requirements in spaces such as customer planning.

Relative to the missed prediction, the momentum just wasn't what we thought it would be. Logisticians were required to focus on traceability in response to market events instead of honing and optimizing their supply chain networks.

CAS and Siebel Systems will represent best-of-breed across the five key (field) selling processes with some point solutions in retail execution and category management.

In July 2005, we predicted that these two vendors (with Siebel Systems now acquired by Oracle) would be the only two that could provide field sales automation suites of best-of-breed tools for category management, customer planning, volume planning, retail execution and monitoring, and settlement. This essentially meant that functional SAP would not achieve best-of-breed status and that a new vendor would not emerge with capabilities across the five key selling processes.

We also predicted that point solutions with best-of-breed functionality would continue to dominate the retail execution/monitoring and category management spaces, because the suite vendors could close the gaps in these areas. We still believe the July 2005 prediction holds true.

SAP continues to lag CAS and Oracle by two or three years, but both of these vendors have not been able to or have not chosen to close the gaps in retail and category management. Therefore, users should continue to weigh the functionality options from both suite and best-of-breed vendors for retail and category management. The suites offer a largely integrated solution while the best-of-breed have some functional advantages.

By 2008, enabling technology will allow CG companies to increase the frequency of re-evaluating their supply chain network strategies by a factor of five.

We predicted in November 2006 that the combination of contract manufacturing, shorter product life cycles, and availability of network optimization analysis capabilities would dive this acceleration in network strategy analysis. The reality is that, while the tools have become more widespread, there have been two offsetting pressures: the economy and elements of track-and-trace functionality.

Because the economy has been strong in most ways outside of the housing sector in the U.S. market, there has not been as much pressure to optimize networks. Products have flowed off the shelves, and there has not been a need to quickly adapt to market swings, because the economy has been in a mode of steady improvement without much volatility.

The other factor has been the number of product recalls, particularly related to products from China. Instead of creating more optimized facilities, manufacturers have scrambled to execute product recalls and to put infrastructure in place to better monitor product origins and deliver better-quality products.

The liability associated with dangerous products has superseded the need for more dynamic production. In fact, dynamic production and sourcing are actually viewed with some suspicion until better visibility and control are in place.