Digital Transformation in

the Consumer Packaged

Goods Industry
Accelerate Your Digital Transformation from
Product to Plant to End User
By Colin Speakman, Reinier Stomp, Cameron Beattie, Zach Coffin, Stefanie Gunia
2 Digital Transformation in the CPG Industry

Table of Contents

Challenges Impacting
the Consumer Packaged
Goods Industry .................................................3

The Keys to Success: Value

Realization and Organizational
Change Management .................................................6

Applying Digital Solutions .................................................9

High Impact Use Cases ...............................................10

Taking the Next Steps ...............................................13

3 Digital Transformation in the CPG Industry

Executive Summary
In the last three years, the consumer packaged
goods (CPG) industry has undergone profound
changes – particularly when considering
digital strategies. In the pre-Covid days, digital
transformation by integrating information
technology (IT) with operational technology (OT)
was an optional investment for industry leaders
and innovators. Once Covid hit and the supply
chain crisis came into effect, resiliency and cost
optimization became more important than ever.
Digitization went from a nice-to-have for some to
a must have for all – sparking a rapid exploration
of digital capabilities across the industry.

Today, we are beginning to see the fruits

of that development, as early adopters
start to reap quantifiable ROIs from their
technology investments. As these capabilities
evolve, however, so do inherent challenges,
forcing companies to adapt to ever-changing
market conditions, continuously align and
realign their leadership and operations, and
effectively handle organizational change
management for technology solutions.

In this eBook, we will leverage our case study

backed research to explore these challenges,
consider mitigation strategies and outline digital
transformation and enablement solutions.
 4 Digital Transformation in the CPG Industry

Challenges Impacting CPG

As the world emerges from the worst of the COVID-19 pandemic and the economic environment
sways under increased inflationary pressures, the consumer packaged goods industry faces
a mounting set of challenges. These new obstacles have developed alongside the industry’s
historic challenges related to building brands, staving off new entrants’ encroachments,
complying with evolving regulations and delivering on consumers’ latest wants and desires.

Increasing Costs of Inputs as Consumer Back-to-the-Basics Production

Willingness to Pay (WTP) Remains Constant Mixing and On Shelf Assortment
At the top of executives' minds are economic In response to these pressures, we see
headwinds. The cost of production inputs has companies taking action. Leaning on a keen
climbed steadily in recent years, sitting 30% understanding of their portfolios and mixes,
higher today than in the year prior. Customers companies increasingly pursue a “back-to-
are increasingly refusing to compromise on price the-basics” approach to production mix and
as inflation and the potential for recession loom on-shelf assortment. A focus on new product
large. For an industry built on a high volume, development and intensive R&D initiatives
low margin playbook, these are troubling trends. is deprioritized in favor of keeping marquee
Yet, there is hope for some. Firms that use these brands and higher-margin shelf sets stocked.
lean times to optimize their costs and innovate A focus on the basics ensures consumers can
new strategies to generate profit will have an connect with the products they love while
opportunity to build long-lasting capabilities suppressing cost centers like R&D departments.
that will reinvigorate long-term strategies.
5 Digital Transformation in the CPG Industry

Reduced Capacity in Response to Shortages A Shifting Regulatory Landscape

Inextricably linked to the macro environment Steadily approaching are new regulations that are
are continued strains on global supply chains. likely to significantly impact business operations.
Even as some companies find their footing Legislation such as the U.S. Securities and
and mend the value chain, the uncertainty of Exchange Commission's (SEC) new environmental
what could happen remains. Because of labor disclosures and policies emerging from the newly
shortages, estimates suggest companies are created International Sustainability Standards
operating at only 80% capacity. Coupled with Board will require companies to significantly
year-over-year transportation cost increases improve their understanding of their products’
of 16%, not only has it become increasingly Scope 1, 2 and 3 emissions. As sustainable
difficult to achieve CPG’s critical economies tracing is pushed by both regulatory agencies and
of scale, but it has become even costlier to consumer demand, companies will need to invest
deliver the products firms produce. While heavily in building out their data infrastructures
these are challenges which can be mitigated to ensure traceability across their supply chains.
by new, adaptive planning models, many
companies continue to rely on aging models and
planning infrastructure and suffer as a result.
6 Digital Transformation in the CPG Industry

The Keys to Success: OCM

and Value Realization
For digital transformation programs to launch,
scale and drive business value, they need to go
beyond the technology to connect with the
processes and people ultimately carrying out the
change. Organizational Change Management
(OCM) should be an integral part of the program
to help shape and drive the entire initiative.

OCM is one of the most important – yet often

overlooked – aspects of any digital transformation
initiative. It is at the heart of the change and the
key to success; it’s the glue holding a program
together. It ensures the organization is prepared
for change and properly brought along on each
step of the journey. This has always been the case,
but it is even more so in the post-pandemic era.
According to recent Gartner research, 69% of
organizations report that their organizations have
accelerated their digital business initiatives, while
also anticipating that employees will experience
on average five times the number of disruptions
and organizational changes in 2023 as they did
in 2014. As the number of disruptive changes
increases, the research also shows a 50% reduction
in the average employee’s capacity for change
before becoming fatigued. OCM plays a crucial
role in reducing this fatigue, while also balancing
the changing environment created by multiple
organizational changes and disruptive forces.
7 Digital Transformation in the CPG Industry

Of course, some may look at the current market – the inflation rate, continued supply chain disruption,
and the potential for recession on the horizon – and begin to reduce their investment in new technology
solutions. While this may alleviate some of the cost pressures in the short term, it serves as a band-
aid on an open wound. To fully take advantage of both up-market and down-market circumstances,
companies need the operational resiliency that is enabled by digital enablement. In these lean times,
however, it may be better to focus more on the technology solutions with quantifiably proven and
short-term ROIs, instead of the traditional proof of concept trail-and-error methods used in the past.

Regardless of the solution that is chosen, companies should not fall into the trap of
underestimating the importance of OCM. Even if leadership invests in the best technology
money can buy, it will flounder without an effective implementation and end-user adoption.
Organizations need to be committed to ensuring their employees are onboard, not only
with the tools, but the concepts of how business will be done going forward.
8 Digital Transformation in the CPG Industry

Applying Digital Solutions

Regardless of the problems facing CPG in the Outside of informing future areas for technology
years to come, enabling digital solutions will investments, historic data can also be leveraged
be a major focus area for industry leaders. to identify trends, respond to supply/demand
Companies should take a careful look at where fluctuations in real time or even predictively,
they prioritize their investments in digital and inform future business strategy.
technologies. Before all else, having enough of
the right kind of data is key. To quote the adage, Improved monitoring metrics in manufacturing
“If you can’t measure it, you can’t improve it.” assets can enable Smart Connected Operations,
which can help reduce both unplanned and
planned downtown, while newly optimized
resource allocations and smart shopfloor
If the right information and KPIs are not planning can enhance labor effectiveness.
being tracked currently, companies need
to invest in technologies that improve
their performance metrics before investing
in technologies that improve financials As we progress further into the digital age,
and increase organization resiliency. companies will think less about whether to
enable digital transformations, and more about
how to strategically enable it to the best effect.
True market leaders will consider the people,
But having data isn’t enough. It must be process and technology aspects of their digital
appropriately organized, analyzed and responded transformations, to create a scalable, unique
to. Once a backbone of data infrastructure is in roadmap, custom-tailored to complement
place, companies will need to align the findings their own business strategy. These companies
with their business strategy and identify which gaps are most likely to develop the resiliency and
and focus areas are priorities for digital investment. efficiency necessary to meet current challenges
Once alignment is reached, they can begin and unknown challenges to come.
researching and assessing the speed and amount
of ROI for various technology solutions, which
can address critical focus areas such as meeting
compliance standards, reducing operational
costs and/or improving speed to market.
9 Digital Transformation in the CPG Industry

High Impact Use Cases

CPG leaders are seeing real business results from digital transformation initiatives.
Here are some of the most valuable use cases.

Digital Product Creation (DPC) Digital Twin

Digital Product Creation is the digitization of the A digital twin is the digital representation of a
design and development process. DPC allows company’s operations including supply chain,
companies to design and develop products manufacturing and distribution. These digital
and their packaging in a virtual environment twins are virtual representations of operations and
and test the product design through physics- utilize simulation and emulation models to test and
based simulations. DPC significantly reduces optimize new or changing operating designs and
development time and costs by iterating configurations. The digital twin allows companies
and testing designs virtually while capturing to understand how a system will operate before
all relevant design history data through commissioning equipment and can virtually
each design iteration. It establishes a high optimize control logic and PLC code through
confidence level that a design meets consumer, advanced simulation and emulation techniques.
customer, product, costs and sustainability
requirements before investing in physical trials. ome.

Product Lifecycle Intelligence (PLI)

Product lifecycle intelligence applies data science
and machine learning to your product and
packaging information stored in PLM and other
product data management systems to find insights
and prescribe recommendations based on historical
data. PLI can also screen new product concepts
for technical feasibility, safety, customer, market,
regulatory and sustainability requirements.
10 Digital Transformation in the CPG Industry

Energy Management and Sustainability

Establish real time visibility into a facilities use of energy and water. Using metering and
advanced machine learning, CPG companies are identifying opportunities to reduce energy
and water use and optimize utility costs through prescriptive analytics.

Process Control Optimization

Optimize a manufacturing process through machine learning control. Machine learning algorithms
allow sensor, vision systems and manufacturing operating control systems to learn, adjust and
control a manufacturing process to automatically optimize quality, yield and throughput.
11 Digital Transformation in the CPG Industry

CPG leaders are seeing real business results from digital transformation initiatives.
Here are some of the most valuable use cases.

Production Performance Management Production Scheduling and Monitoring

Utilize IT and OT production performance Machine Learning algorithms optimize production
data to find, analyze and visualize production scheduling based on known constraints and
losses, identify the root cause of the loss and past performance data. When a production
prioritize them for continuous improvement. constraint is identified, planning and scheduling
Production Performance Management algorithms prescribe in real time the optimal
provides real time visibility to the most production schedule and resource plan based
important production performance problems on resource performance and asset availability.
at the line, site and enterprise level and tracks
their resolution through completion.
Real-Time Product Release

Asset Performance Management As supply chain constraints continue to be a

and Predictive Maintenance challenge, getting products into distribution
channels is important to reduce out of stocks.
Actively monitor manufacturing and operations Often products are stocked in the Warehouse
asset performance to proactively identify anomalies as production and logistic is waiting for the final
and schedule preventative maintenance to optimize Quality release. If the set regulation and compliant
operating performance and maintenance costs. goals are being checked during the online and
lab quality checks in production and all data are
being in context available, the digital thread would
allow you to provide a prediction on the foreseen
release of the product so that the product can
be shipped and released during distribution.
12 Digital Transformation in the CPG Industry

Taking the Next Steps

3. Learning the PLC Paradox

A problem that comes when teaching a model is called Learning the Programmable Logic Controllers
(PLC) Paradox. This becomes an issue when the PLC or PID loops are teaching the model rather
than the natural dynamics of the system. When teaching a model, it is important to ensure the data
generated with a PLC or from a previous PID loop are not doing the teaching. If this happens, the
model may be learning the previous control strategy rather than the true system dynamics.

To understand this, consider the way a residential temperature control system learns. The temperature
It is an unavoidable fact that we now are part
of a digital era. Companies will need to digitize
to keep up with their competitors by using
digital solutions to optimize their operations,
invigorate R&D practices, reduce time-to-
market, forecast supply & demand trends and
meet regulatory compliance requirements.

The biggest challenge, however, will be

effectively making the transition. In this
potentially recessionary environment, companies
will need to rapidly align business and
operational goals and incorporate solutions
with hard short-term ROI’s that can lay the
foundation for future improvements.

We are past the scientific experiment “proof of

concept” stage of digitization. Market disruptions
have pushed us through that stage at a breakneck
pace. Companies need to make concerted efforts
to see what proven solutions are out there and
begin the process of implementing them.

control system is provided data that shows times where it turned up the temperature and what the
current temperature is. It uses that data to learn a good temperature control model on which to operate.
It would learn to turn up the temperature when its coldest and to turn down the temperature when its
 Digital Transformation in the CPG Industry

About Kalypso
At Kalypso we focus on the digital transformation of the value
chain, from product to plant to end user. This means leveraging
digital technologies and capabilities to fundamentally change the
way companies discover, create, make and sell new products.
Digital transformation can accelerate business growth, maximize
productivity and optimize operations. The most successful
digital transformation initiatives result in better products that
can improve people’s lives and expand human possibility.

For more information, please contact:

Collin Speakman Zach Coffin

Principal Manager
[email protected] [email protected]

Reinier Stomp Stefanie Gunia

Senior Manager Senior Manager
[email protected] [email protected]

Cameron Beattie Diana Olmos

Senior Manager Senior Designer
[email protected] [email protected]

kalypso.com/sco