CPG manufacturers need a comprehensive strategy for digitization

By Luis Benavides, Marnix Hollander, Frédéric Lefort, and Julian Salguero

Increasingly competitive CPG markets are making consumer-centered innovation—and the successful adoption of digital technologies—essential as the CPG landscape evolves through 2030.

The relentless hype around digital in consumer-packaged-goods (CPG) manufacturing has left many leaders disoriented and paralyzed by the many buzzwords and the promised benefits of digital tools. At the same time, their efforts to gain traction with digital are hindered by legacy systems, processes, and capabilities. A recent McKinsey survey of senior CPG leaders found that most consider digital technologies to be a priority, but few have defined a clear strategic vision linked to actions. The major obstacles cited were a lack of skilled resources, out-of-date software models and an inadequate IT infrastructure, the absence of data standards, and obsolete data-management systems (Exhibit 1).

Senior leaders say digital is a priority, but few link a clear strategic vision to actions.

Several factors help to explain why manufacturers both need a digital strategy and have struggled to put one into action.

First, the manufacturing-excellence programs companies have employed in recent years are yielding diminishing returns. Companies believe they have already captured the full value from lean management and are struggling to find the next pipeline of initiatives that will deliver the typically expected 3 percent annual productivity improvement. Many companies have also already tapped the potential of zero-based budgeting or complexity reduction, and further cost reductions are not expected to be significant.

Second, companies’ current practices and systems are not capable of drawing actionable insights from the vast amounts of data available. A recent, and representative, analysis found that a manufacturer failed to use up to 75 percent of the data it had captured. Data management was one major obstacle, as the lack of integration among systems made it hard to access and investigate the full breadth of the recorded data. What’s more, the company did not perform real-time or forward-looking analyses, and it did not provide operators with an interface that would enable them to see the information and apply the insights to improve performance (Exhibit 2).

During the first phase, a lot of data is captured, but much of it—up to 75 percent—is not used.

Finally, talent management has failed to keep pace with the needs of a digitally focused organization. Manufacturers must redesign their recruiting and people strategies in order to attract and retain employees, such as data scientists, with the specialized skills required for driving digital forward. At the same time, they must ensure they are educating and inspiring their current employees on the application and benefits of digital tools. When process experts and operators understand how digital technologies can help them, they can apply their knowledge to develop valuable insights and use cases.

To define and execute a strategy that supports their business goals, the leaders in adopting digital technology in CPG manufacturing have applied a four-part approach:

  • using digital solutions to enhance performance and build capabilities

  • applying advanced analytics to generate new insights

  • implementing breakthrough technologies to fundamentally change the game

  • mastering the right enablers throughout the organization to promote a sustained digital journey

Using digital solutions to enhance performance and build capabilities

Especially in the early to middle stages of the digital journey, companies should focus on targeted digital solutions instead of broad IT implementations. Examples of targeted digital solutions include real-time dashboards, digitized operating standards, and leader standard work. Benefits include higher overall equipment effectiveness (OEE), reduced levels of scrap, higher throughput, lower planned downtime, and faster changeovers. These solutions also promote higher levels of engagement throughout the organization.

Targeted digital solutions promote these improvements by addressing the typical pain points that prevent lean from being successfully implemented at scale. In trying to implement lean management and continuous improvement across manufacturing processes, companies typically face three major pain points:

  • Scalability: Can ideas and practices implemented in pilot areas or sites successfully scale to the rest of the organization? Digital tools should actively promote and accelerate scale, instead of hinder it.

  • Consistency: So that everyone from the frontline to the COO sees the same information, is there a single source of truth for all data and key performance indicators (KPIs)? Digital can rapidly aggregate and normalize data in a standard manner.

  • Visibility: Can people across the organization quickly access the key information they need to make decisions? Digital can provide unprecedented levels of visibility to accelerate the decision-making process.

Well-designed, “lightweight,” digital tools—which do not require high levels of IT investment, integration, or training—can address these pain points rapidly and at a relatively low cost. These simple digital tools also serve as prototypes for more advanced tools and infrastructure and allow operators to gain experience with digital data, visualization, and basic analytics. Moreover, they help to identify which areas are good candidates for more robust digital tools, advanced analytics, and hardware and software investments, as well as indicating the data-driven returns on investment to pursue.

We have found that digital solutions can be considered in terms of four archetypes. These archetypes can be integrated to provide a full toolkit to frontline manufacturing leaders.

1. Setting performance targets

To set aspirational targets, companies need the right performance information and benchmarks. This requires having access to information about global operational performance through a simple platform, combined with internal and potentially external benchmarks presented cleanly with clear visuals to support insight generation. Companies can use the information to assess the gaps to full potential for every cost and operations performance element and the “size of the prize” from closing the gaps at different levels.

Example: A large food manufacturer wanted to maximize the returns from its next wave of continuous improvement programs. But, because it lacked visibility into performance throughout the organization, it was uncertain about which performance levers to pull across its network. Additionally, it was under pressure to deliver larger savings than the standard 2 to 5 percent achieved annually. To gain visibility, the manufacturer used a digital solution to serve as the single source of truth to track performance for all key metrics and provide internal and external benchmarks. This enabled leaders to understand the full potential value at stake. The manufacturer used the new digital solution to set performance targets that were consistent with the opportunities it identified. It also gave each plant access to the tool, so that managers could better understand the areas where their performance ranked higher or lower relative to other plants. As a result, managers now have clear performance targets and understand which areas should be the focus of improvement efforts. The potential opportunities identified totaled 10 to 15 percent of conversion costs and material waste. The increased visibility promoted by the solution has also sparked the sharing of best practices across plants. Moreover, because managers trust the accuracy of the performance data, they feel that they are being treated fairly and consistently.

2. Guiding daily performance and activities

Decision support tools (descriptive, predictive, and prescriptive analytics) and productivity boosters (digitization of paper or manual processes) help companies capture value from the application of lean principles. These solutions allow manufacturers to collect and track information on line performance (such as OEE), as well as execute and track standard work activities. The information serves as the input to action-oriented performance dialogues and promotes a faster continuous improvement cycle.

Example: One North American bakery was struggling to improve its performance as measured by productivity and OEE KPIs. Managers knew their OEE percentage, but they neither understood the loss drivers nor possessed actionable data they could use for problem solving. Although supervisors and operators invested significant time-gathering data, the information was often incomplete and arrived too late and with insufficient detail to immediately identify corrective actions. To gain actionable insights for performance management, the site implemented a simple real-time OEE system that incorporated operators’ insights and inputs from key workstations on the line. Because the new OEE system engaged operators to enter information, it increased trust in the data, ensured more actionable information, and promoted active engagement and problem solving on the line. By feeding this information into a well-coordinated performance dialogue structure that cascaded from the front line to the site manager, the site ensured accountability and action relating to the data.

As part of their efforts to apply digital solutions to strengthen daily practice, leaders also improved their use of leader standard work, which they had been using as a calendar tool rather than to develop employees’ capabilities and thereby enhance performance. They rolled out a solution that allowed them to focus leader standard work on the most important development activities, such as one-on-one coaching, gemba walks, and root-cause analysis. By guiding performance and activities, leaders enabled their teams to increase OEE by 5 to 8 percent across their lines and motivate operators. Supervisors were also able to spend significantly more time on the line, instead of completing paperwork.

The system was targeted and simple enough to be deployed in days, without involving a major IT effort, while also being scalable to the rest of the bakery network. Furthermore, by leveraging a single cloud-based tool, OEE metrics could be measured consistently from site to site, enabling better benchmarking and visibility across regions. “I love the transparency the system provides,” said a vice president. “I want it in all my plants.”

3. Increasing operational maturity

When implementing or scaling initiatives, a common challenge is to ensure that processes and standards are consistent across regions and over time. Maturity assessments, with content ranging from management to maintenance, enable companies to measure operational process maturity against best practices and benchmarks. By asking tactical questions and calibrating answers, leaders can understand where gaps to best practice exist, and design plans to improve performance across multiple dimensions.

Scaling these assessments across a broad network and implementing best practices frequently prove difficult, given the challenges of data aggregation and assessment consistency. Companies can leverage digital solutions to scale and accelerate the assessment and the adoption of operational best practices. Digital solutions can use intelligent algorithms to automatically design transformation plans that achieve the desired results, connect best-in-class practitioners, and track operational performance against process maturity.

Example: A major European insurer wanted to rapidly scale a standardized operational maturity assessment across its organization, but its traditional paper-based assessments made it hard to do so in a sustainable and consistent way. Moreover, data was hard to gather, normalize, and benchmark, especially with many assessors scattered globally. To overcome these challenges to scaling, the maturity assessment was digitized to provide a single source of truth, facilitate continuous access, improve level-setting across assessors, and enable faster assessments. Data could easily be compared with internal and external benchmarks, generating new insights.

4. Accelerating capability building

As operational maturity grows across an organization, a failure to build the knowledge base and train employees on an ongoing basis can impede continuous improvement. In such cases, best practices are not easily shared across locations and traditional methods often require extensive overhead and travel. To build long-term capabilities, companies need the ability to easily codify, share, and improve upon their knowledge base. A digital system can accelerate knowledge sharing, enable more frequent interactions among practitioners, and ensure the availability of a well-curated knowledge base. Online trainings, augmented-reality simulations, and social sharing are key elements of a capability-building platform. For example, by maintaining an up-to-date library of standards, tools, templates, guidelines, and best practices, companies can give line leaders easy access to the knowledge they need as they advance in their lean journey. Rather than “reinvent the wheel” or use outdated approaches, leaders can readily learn about the organization’s best solution to a recurring problem.

Example: An industrial products company created a capability-building platform to facilitate a broad digital transformation. The company had many autonomous business units, with minimal collaboration within and between units and no common standards within functional areas. To standardize processes within functional areas and across units, it developed a digitized production system that drew upon McKinsey’s knowledge of trainings, best practices, and standards. A central web-based knowledge platform promotes collaboration within functions and across business units by enabling the sharing of global standards, fostering adherence to the standards, and improving communication. This enhanced level of collaboration facilitated the rollout of standardized core lean practices (including 5S principles, maintenance processes, and performance management) across more than seven sites. The effort aligned more than 2,000 employees in production and maintenance around the core lean processes.

Even in an age when digital technologies are transforming operations, people remain essential to driving an organization’s success. Companies should educate their people about how digital can help them solve their everyday business problems. Operational leaders can then apply this knowledge to develop use cases that generate value and ask for digital solutions to implement them. To make this happen, companies should empower individual operational leaders by giving them the freedom to explore options and take an entrepreneurial approach to implementing solutions. Early approaches should aim to “fail fast” and build momentum for a broader transformation. For a discussion of the requirements for long-term success, see the subsequent chapter, “Mastering the enablers of a sustained digital journey.”

About the author(s)

Luis Benavides is a partner in McKinsey’s Miami office, where Julian Salguero is an associate partner; Frédéric Lefort is a partner in the Gothenburg office; and Marnix Hollander is a solution general manager in the Stamford office.

The authors wish to thank Mike Doheny for his contributions to this article.
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