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Consumer Goods Companies Need to Rethink the Value Chain

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It’s time for consumer goods companies to shift away from value chains—whereby goods and information flow linearly from supplier to manufacturer to retailer to consumer—and place the public at the center of a more collaborative value network that will help secure a path to long-term growth.

That’s the main takeaway from “Rethinking the Value Chain: New Realities in Collaborative Business,” a report published Monday by the Consumer Goods Forum (CGF) and consulting group Capgemini, claiming that the current system can’t keep pace with the new normal in consumer behavior, business innovation, demographics and economics.

Unveiled during the CGF’s board of directors meeting in Amsterdam, the report points out that companies such as on-demand car service Uber and Tictail, a global e-commerce marketplace, represent new models for value creation by structuring activity across a network—both internally and with external suppliers and customers—that allows many different paths to the customer.

“Traditional value chains and supply chains cannot respond effectively and quickly enough to the complex and varied demand signals we now face. This is not just bad for business; it is bad for the whole industry,” the report said. “If the value chain no longer supports growth, what will happen to investment capital? Could we see flight of capital to industries or business models with more potential for growth?”

It goes on to highlight three main priorities on which the consumer goods industry could collaborate in a way that should deliver a positive return on investment.

First up, consumer engagement: Companies need to have genuine conversations with shoppers, and use their data responsibly and in such a way that it provides content and offers relevant to their physical location as well as their place on the path to purchase.

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Transparency is important, too. Increasingly empowered consumers want to know everything about the contents, safety, environmental and societal impact of the products that they buy, which the report said will require global data definitions and industry-wide principals and guidelines. “Currently, this information often resides in silos. To be effectively utilized, it needs to be more open and connected,” it continued.

Lastly, “last mile” logistics to both the retail store and the consumer is falling short. The report said it’s time for companies to reconsider that this is an area where they operate independently of each other. Instead, they should collaborate—where possible—to improve speed, efficiency and consumer satisfaction while minimizing environmental impact.

“Today’s consumer is empowered like never before,” said Muhtar Kent, chairman and chief executive officer of The Coca-Cola Company, who initiated the project at the board level along with Motoya Okada, president and group CEO of Aeon Co. Ltd.

He added, “Consumers now have the power and the means to share their opinions and concerns with a larger audience than ever, through a growing array of social and digital channels. In this era of rising consumer expectations and a rapidly changing business environment, there is one crucial question we need to ask ourselves: How do we strengthen our industry and benefit consumers through the unprecedented challenges that lie ahead?”

Okada noted, “We can achieve these goals by collaborating much more effectively than in the past. The world is changing profoundly and so must we.”