The COVID-19 pandemic has rapidly transformed the packaging industry in several ways, not least by accelerating the need for digital adoption, an area in which the industry has historically lagged. To understand the current state of play and the opportunity space for digital and analytics (DnA) in the industry, we launched a global survey with industry executives backed up by interviews with industry experts covering multiple packaging substrates and regions. Our work has uncovered four key findings.
First, the industry is, not surprisingly, still in the early days of digital adoption, lagging telecoms, banking, and advanced industries such as automotive and aerospace. However, according to executives in the surveyed packaging companies, DnA is a clear priority and is seen as an important value-creation lever. So far, the areas that are most advanced in terms of digital adoption are, in order, manufacturing, supply chain, and HR and talent management.
Second, looking ahead, firms are set to expand DnA adoption beyond manufacturing and supply chain to the commercial area, with applications offering multiple digital levers to accelerate value capture. Third, many of the surveyed companies are harnessing digital to enhance technology features in packaging itself. While the main applications are currently focused on consumer interaction and engagement and “track-and-trace” features, many companies expect to leverage digital to enhance packaging recyclability, circularity, and data collection.
Fourth, about 70 percent of respondents think DnA adoption could lead to overall cost improvements of more than 5 percent for companies, while half of those responding see potential for a revenue and working-capital boost of more than 5 percent. That said, capturing this value is not straightforward and could be hindered by several execution challenges. To get started on the digital journey, organizations should address key imperatives around four main areas.
The packaging industry has historically trailed the DnA-adoption curve (Exhibit 1). However, since the start of the COVID-19 pandemic, we have witnessed a strong need for the entire value chain to become more digitized not only to mitigate supply-chain and production risk but also to improve productivity and lower costs. Additionally, as costs have declined, there has been increasing interest in applying intelligent solutions and digitization to packaging for the purposes of consumer interaction and tracking and tracing. Significantly, the packaging industry is facing increasing pressure to digitalize, as recent growth in e-commerce, led by rapid expansion in online grocery sales, creates new packaging requirements.
Considering these trends, what potential value could packaging companies gain from applying digital and analytics? In which areas or functions? And what is their current starting point? To find answers, we conducted a global survey with industry experts in conjunction with interviews with experts from all types of packaging substrates and regions.
Current state of digital and analytics in packaging
Our survey shows that DnA is a priority for a clear majority of the surveyed packaging companies: about 22 percent of respondents said that DnA is already a stated priority in their strategy, while 34 percent told us it is important across all company functions. Forty-two percent of respondents see DnA as somewhat important, with the level of importance varying by function within their company. In fact, only 2 percent said that DnA is not important for their company at all.
At the same time, all respondents indicated that DnA is not yet fully embedded in their organizations, suggesting extensive scope for further advancement and development within the industry. Additionally, the survey shows that the level of DnA used within organizations varies significantly by function (Exhibit 2). So far, most respondents cited basic use of digital tools across functions (for example, off-the-shelf software), while a few reported slightly more advanced levels of DnA integration in manufacturing, commercial, and finance. These findings indicate important opportunities for packaging companies to progress from off-the-shelf tools to more advanced digital integration across functions.
When considering technology integration within packaged products themselves, most survey respondents pointed to consumer interaction and engagement, improving the circular economy, and track and trace as the key areas where DnA is currently applied. Very few respondents see digital tools being used for anticounterfeit purposes or managing product life cycle. Looking ahead, survey respondents expect DnA to grow in significance, enabling sustainability and circularity and enhancing consumer-intelligence collection and consumer engagement.
Value creation through digital and analytics
Respondents agreed that going forward, the functions most likely to create value through the application of DnA are manufacturing, commercial, and supply chain. Looking at these three functions in more detail, DnA is expected to create value in several ways. DnA opportunities in manufacturing revolve around quality control, improving the performance of overall equipment effectiveness, and overall plant-performance management. Within commercial, the top levers are perceived to be in the area of customer and account management: indeed, pipeline management for new and current customers and customer-experience measurement can both be enhanced by digital tools. Within supply chain, DnA can drive significant value around planning and forecasting, especially in sales and operations planning and inventory management.
More than 70 percent of respondents think that applying DnA levers across functions could lead to cost improvements of more than 5 percent, while half of the respondents believe that DnA could drive improvements of more than 5 percent in revenue and working capital (Exhibit 3). Survey responses also validated our belief that packaging companies are able to generate 5 to 7 percent growth and 3 to 5 percent margin increase in 12 to 18 months using DnA in manufacturing, supply chain, and commercial areas.
Embrace the digital journey and get started
As we emerge from COVID-19 and enter the next normal, digital will play an increasingly important role within the packaging industry, offering major opportunities to create value. We should note, however, that digital is a multifaceted area, and a DnA transformation could be hindered by several execution challenges:
- uncompelling aspiration or poorly communicated digital-transformation story
- low visibility of realized benefits, with no clear performance management within the organization
- hazy accountability for delivery, with ownership split and competing for resources between digital and traditional
- scarcity of talent and capabilities to drive execution and capture value in digital opportunities
- lack of digital knowledge and misaligned incentives among top management leading to low ambition and poorly focused mindsets within the organization
- transformation centered on technology instead of customer and business needs
Accordingly, packaging companies can capture the opportunity, anticipate execution challenges, and get started on their digital journey by learning from industries that are much further along the digital path, specifically by addressing four key imperatives:
1. Develop the strategy. Adopt a shaping position early on; define clear goals and objectives for capturing value through DnA.
2. Decide on target areas but don’t try to do everything. Develop a clear view of where the value is coming from as a way of prioritizing the areas to reinvent (for example, commercial, manufacturing, and supply chain, or procurement excellence).
3. Ensure key enablers are in place. To be successful in a digital transformation that delivers impact at scale, ensure four critical enablers are in place to gain a strategic advantage within the packaging value chain: agile delivery, data, talent, and technology.
4. Drive the execution. Packaging companies that are gaining traction at scale typically work to solve two discrete problems: adoption and business-model change.
The packaging industry has historically lagged other industries in terms of DnA adoption. With the right approach, packaging companies can overcome execution challenges to pursue the sizable cost-efficiency, growth, and productivity opportunities that lie ahead as a result of successful DnA implementation.