PepsiCo talk AI in supply chain, COVID-19 and the rise of direct-to-consumerBy Jon Taylor on January 11, 2021
Peak's Will Dutton and Tom Summerfield sat down (virtually) with Ian Owen, Supply Chain Director at leading global food and beverage business, PepsiCo.
The rise of direct-to-consumer (D2C) channels in the consumer packaged goods (CPG) sector was high on the agenda, as Ian talked us through his experience of what has been a turbulent few months for those working in supply chain. He also touched on the beneficial impact of artificial intelligence (AI) in supply chain strategy, and how businesses can utilize this technology to their advantage…
In the past year, there’s been lots of talk of volatility in the supply chain and emptier shelves, driven by COVID-19. What’s been your experience of this? Is this really the case?
I think so, clearly we had that in wave one in March last year, when the shelves were bare. But, as we’ve just come through the following waves, I think most CPG organizations have not seen the same extremities. It’s hard, because if you look at it in a binary way, for some products there’s been crazy demand. Other products have just gone to zero, and I think that’s been the real challenge; are we going to surge? When are we going to surge? It’s been regional, too. In the UK now it’s national, but it has been regional which has been another challenge. Where are the spikes going to happen and not going to happen? It’s a lot more volatile than it normally is. When you overlay that with the macro environment at the moment in the UK with Brexit and, for most organizations, periods like Christmas, it starts becoming quite a challenge.
We’re here to discuss the potential of direct-to-consumer (D2C), e-commerce and learning more about your consumers. Many big brands have made this move – what’s the motivation behind it?
I think, in a way, it’s positive. If you look back at how it happened, I think a lot of CPGers were probably forced, to a degree, to do it. Because shops were just closed overnight and it was either businesses went to zero or you needed to find other avenues. It varies on which goods you’re talking about to how they make that feasible; whether it’s through a partner, a supermarket, a retailer and getting a basket or whether it’s a small individual item. But, certainly, we’ve seen the growth. If you try and get a click and collect at some of these famous retailers it’s been extremely challenging, and the capacity has grown across the spectrum at the moment, it has rapidly increased. And I think it’s proven where it works and where it doesn’t work.
I think it’ll slow down a little bit once we’re over the latest COVID spike, but I think for a lot of people it’s accelerated the e-commerce world and, to be honest, made data more apparent and realistic, because you need to view those trends.
Another thing is you’re more in touch or have the chance to be more in touch with your customer directly, so speed is another thing. Normally things have been slow, or potentially slow for CPGers. Potentially, in the real world, it could be a couple of weeks, but now products can move in days if not hours – look at Amazon and how quickly they can deliver stuff now, it can be there in an hour or so. So that’s the other avenue, how quickly things can touch the consumer.
Clockwise from top left: Will Dutton, Manufacturing Director, Peak; Tom Summerfield, Retail Director, Peak; Ian Owen, Supply Chain Director, PepsiCo
Typically, problems of supply and the bullwhip effect caused by volatility. Is D2C increasing this? Have you seen any effect of this on the supply side?
I don’t think so. I think it depends on how you’re doing e-commerce, whether it’s direct-to-consumer or whether it’s through a third-party retailer or somewhere else. If it’s direct, you get really good intelligence there, and things can move. What you can do is be more playful with your inventory; what you can sell is what you have got. If it’s through another organization and the shelves are bare then you can’t really dictate that, it’s somewhat out of your hands. Whereas if it’s not on your website, to a degree, and it’s not always the case, but predominantly you can always add on there.
I think the advantage is you have more levers to play with, and you have real time information on what people want. You can see, if you look at the data, look at the links, what people are clicking and searching for – you get more of a feel for those macro trends and what people are after. It’s not just about the sale, it’s about the insights you get on the consumer and how you can tailor your offerings to those different types of consumer, which is a really insightful factor.
Talking about this growth of information, have CPGers got to change their systems, the way they view all of that data being generated, because obviously it’s an added capability that they need to do that?
I’ve not seen it, but I think most people have just been trying to find their feet and get their things sorted. I think that will come, the data is there and if you look at discussions with other CPGers, it’s “which bits of information do you use first?” I think that’s where some of the value from AI comes in so that you can get those insights. One source of information is OK, but you need multiple strands of information, really, to start piecing the picture together.
You can have weather as one factor and do something with that, but then overlay that with – excuse the COVID example – overlay that on the top which can completely change the picture again. You need to layer these things up in order to get the insightful facts and knowledge. I think, if you look at it from a level of maturity, and I’m being very broad brushed across all CPGers, I think most are in their infancy. I think that will come, and it’s where the energy and value will come, but I think it’s too early in the game at the moment to allude any further on that.
Have you seen organizational changes, not just in terms of new capabilities needed but in terms of how organisations are structured, due to D2C? Or are we too early on the journey?
I think we’re too early, but if you look at e-commerce and again go back to retailers, a good litmus test for me is click and collect. One is how much they’re increasing capacity, and then secondly, the availability of those click and collect slots or, indeed, deliveries to households. I think that just shows you how much growth there is. Most CPGers, very broad brushed, will be talking single or double digit, but when you’re getting triple digit growth in avenues, it raises peoples’ interest and you start making those decisions.
I think there’s a lot of discussion and people are trying to work out where they are, but I think one thing’s for sure is that e-commerce is growing across all types of categories. It’s just another avenue for a consumer to be able to get a product and I think that’s the key point; you’re not trying to change tact or go against one retailer or another, it’s not that at all, it’s about offering another choice to the consumer and another way to get a product.
We’ve seen people like Heinz do bundles of goods, and I’m wondering what CPGers will offer down this route –different bundles to what you’d get at a retailer and such, maybe it’s down to the economics? What’s your thoughts?
I think there will be economic reasons. You used the bean example, and if you sold a tin of beans for 50p and it’s free delivery, it’s never going to be a long-term sustainable business. So I think they’ve got to have a bundle in order to get it to a size to make it viable as a business. I think the other point is choice, and if you go to a shop typically you get the bundle that’s there; the more you can tailor that bundle, the more you can offer and give people choice. It’s a bit like if you go to an online retailer and you can pop whatever you want in your basket, if that then compiles into your bundle then it’s a bit of a win-win.
I think if you look again at where particular growth has come from, take CostCo as an example; its growth is huge and that’s because people are bulk buying and that’s one of the advantages of CPG, there’s always been a question around ‘would people want to buy a bundle of beans?’ and the answer is yes they do, and they will do as long as they can get what they want.
That’s one of the questions – will that bulk buying continue? Storage is a factor if you’re in an apartment in London, but if you’ve got room in a garage or something, for other people it’s different! But it shows you the importance of segmentation, D2C won’t suit everybody, but it’ll certainly suit certain consumers and they’re the ones to focus on. Again, it’s just another arm to the business in order to give them some functionality and offering that they didn’t have previously.
If people are buying these bundles, will that cause any supply issues? If their brand is more front and centre, will they be more transparent? Personally, I like buying direct because I can learn more about the product, will that come more into play especially with issues around sustainability and people being more aware of where their food is coming from?
I think it will complement rather than take away business or just increase sales direct to manufacturer. If I turn it on its head, you’ll get more direct and quicker feedback. You talk about sustainability, which is becoming more and more apparent, you see in real-time, with your own data, what people are buying and what they’re not, and get feedback accordingly.
I think that’s the really useful point, because you can hear what they like and what they don’t like. Again, it needs a bit of time to build up patterns and trends and see what’s out there. Also overlay that – again, I come back to my macro environment point – overlay that with other changing trends and hopefully, as you build a picture and get more and more mature in your information, you should be able to see what’s coming down the line before it hits you.
Quite often there’s a lag, just from the communication of how many people or how many different organizations a product goes through. It could be a cornershop from a wholesaler to a manufacturer; there’s so many different layers so it’s that real-time information that’s key, but it comes back to what you do with that information. Don’t just process it, otherwise you can knee-jerk.
I think, for us, it’s a bit of a test and learn analogy; you need to understand, listen and see trends that you can then potentially offer to your other customers, helping them to insightfully and incrementally grow their own businesses at the same time. I think that’s just as important as getting the sale; it’s more about how you can help provide insights to the retailers around what you’re seeing that’s trending, what customer appetite is, and then hopefully offer things accordingly so that it’s a bit of a win-win for everybody.
It feels like data is the core aspect of e-commerce in CPG; you can learn more about where demand is coming from, understand how you can better serve customers through segmentation and then use those learnings. It sounds like new product introduction could be driven by it, too?
It does make sense, if I’m being honest I have two views on data. I think every organization has a load of data, the challenge is what you do with that data – that’s the important piece. I look at an organization like ourselves or other CPGers and we’re flooded with data, but you need a model, a system – and qualified people! – to be able to do something with it to give you those insights. Secondly, culturally and organizationally you need to have the appetite to go and do something with it. Again, we have loads of data there, but it’s what you do with it and how you make changes to the business with that data that’s the key point.
Do you think that data strategy and digital capability is going to become more central to a CPG organization’s day-to-day and the way they compete?
I think it’s slowly coming, but what people are getting wiser to is that a lot of organizations have a lot of people churning a lot of data. We reflected and asked “how much of the day are we churning data, and how much of the day are we actually doing something with the data?” For me, the balance was wrong – it was too much churning and not enough doing. I think that’s where the power of AI comes in, because if you get it right – it’s like an evolution, it’ll never be perfect but you can build up on it, add to it and take things away – you then get the people using information to make the right decisions and tipping that scale. So you’ve got the balance of getting information and then doing something with it, and I think that’s the real power play, and I think all organizations – not just CPGers – are starting to get smart.
If you go back three or four years, AI was a buzzword, you had factory 4.0, but a lot of my peers across different companies were saying it’s great, but when you actually drill down, what are you trying to do with it? I think that’s starting to become clearer now. COVID has accelerated that, I think it’s been a test of “let’s just go for it!” and, from that, we’re growing the level of maturity on that information and know what to do with it.
I think the other part is that you have to bring teams on the journey with you, when they’re involved in it and realise that it has value, and that instead of spending seven hours a day on Excel to get an insight, you can now spend two minutes with AI and get the data you want and then do some cool and creative stuff for the rest of the day – so you get engagement, motivation and better decision making. And I think that’s the bit that’s caused the really big appetite for CPG at the moment; not just the insight but what you’re doing with them.
What excites you about the future of AI? Where do you see it transforming CPG, where it isn’t already, or a particular area where it can drive value?
There’s a couple of points, first and foremost is that it tells me a problem before I’ve got it – that would be useful! Quite often it hits you in the face and you try and solve the problem afterwards, but you want to know that “this is coming, it’s going to hit me.” It would’ve been great if you could’ve told me about COVID!
But, on a serious point, I think that’s the main driver. A lot of people in CPG talk about control towers and information, and the faster we can get that real-time information and see whether it’s orders coming through to forecast, delays at certain customers, the biggest demand in certain regions; the more of that information that you can amalgamate and bring together, the better your decision making will be.
At the moment, there’s quite often a lag because of the size of big organizations and the communication path that has to follow through, but with our level of AI that we’re getting now, we’re seeing that information a lot quicker, and I think that’s what we’ll see more in CPG. We’ll see more of the value of this, not just ourselves but for our customers and consumers. We’ll improve faster, and if we can improve faster we’ll get slicker, with better offerings, and everyone wins.
Are there any blockers or enablers you’re seeing to using these technologies?
I think one of the ones that springs to mind is around system integration. I think you’ve got to make sure that you do your due diligence with any AI organization and make sure that the security levels and the system integration is spot on. These days, living with cyber security etc, making sure all of those security measures are in place is one of the biggest challenges you’ll have. I think that’s one of the things that everyone needs to watch out for, making sure the rigour is put into that and you don’t just pass over it, it needs to be world class to deliver a level of confidence.