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Tuesday, April 16, 2024

Driving digital during a downturn

Josephine Coombe explains why it’s crucial to Invest in digitalisation – even through these tough times

Rocked by the pandemic, supply chain disruptions, soaring energy costs, and more, the consumer goods industry has had a tough few years. And with economic conditions increasingly gloomy, there is little relief on the horizon.

With so much instability in the market, business leaders might be forgiven for adopting a cautious stance toward questions of new investment, such as software purchases and automation. Reducing spend on new initiatives is often the default reaction to challenging economic conditions – why take risks when revenue projections are tenuous at best. But is hitting the pause button wise? Like so much in this world, it depends.

Let’s focus on the FMCG supply chain itself, and in particular, contract packing companies and 3PLs offering value added services. In challenging conditions economically, brands often lean more heavily on suppliers precisely because outsourcing can help avoid costly in-house investments. If a brand wants to introduce a new product variant, for example, and market acceptance remains uncertain, new equipment investments might be shelved in favour of experimenting through external supply chain partners with those capabilities already in place. A specialist co-packer can thereby perform as an agile, lower-risk arm of innovation for brands, particularly in testing market conditions.

Those same suppliers, however, may be facing their own challenges, with rising labour, energy, and materials costs putting pressure on their bottom line. That’s where hitting the pause button may not be wise. In fact, many investments often considered high-risk can be the key to better managing financial performance of operations through challenging times.

Digitalisation in particular can provide businesses with significant advantages in a cost-constrained environment. From ensuring protection against labour shortages and rising wages to providing better control over materials costs and reduction of waste. In addition, production performance is improved, and costly manual processes eliminated, all while quality control and risk mitigation are enhanced.

As labour becomes scarce, and wages rise, the benefits of improved visibility and management of labour is hard to overstate. Production shop-floor software, such as Nulogy’s co-packing solution, provides companies with a real-time view of labour performance on the line, and an accurate understanding of the optimum labour allocation for any given job – both of which translate into improved productivity and cost control.

Similarly, software can provide logistics companies with enhanced control over materials and inventory: avoiding costly buffer stock, expiration of inventory, or situations where a job cannot be completed due to a shortage of components, only discovered too late.

Digitalisation of production, planning, and scheduling functions can also offer cost savings by eliminating blind spots of inefficiency that plague businesses still relying on manual processes, spreadsheets, or antiquated systems. What’s more, these legacy approaches often conflict with the expectations of today’s brands, who want information quickly and cannot afford to wait for a supplier to sift through paperwork for important order information.

That expectation is rarely more critical than in the case of a recall, which brings us to the final issue of quality control. In the absence of a digitalised system, quality control is always at risk, prone to human error – which can have devastating consequences reputationally, commercially, and most critically, for end consumer safety.

Ultimately, digitalisation not only protects your business from unnecessary costs, often hidden in the seams of the operation, but proofs your business against risks of a higher order as well. Sometimes, investment is the best strategy – even in the worst of times.


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