Digital transformation through customer experience: growth driver for suppliers of commodities?

Framework?

This article is aimed specifically at European suppliers of commodities (agricultural products, metals, polymers, minerals, packaging, enzymes, etc.), also called basic products, not or slightly processed, of everyday consumption, standards, with qualities perfectly defined and known to buyers, perfectly interchangeable, as opposed to specialty products. In this article, these products of commodities are sold to industrial customers producing so-called Fast-moving consumer goods (FMCG). Fast-moving consumer goods are products with a short shelf life, high frequency of consumption, and affordable prices, intended for the general public, such as food, beverages, pharmaceuticals, and cosmetics, and produced by multinationals such as General Mills, Danone, Mondelez, Nestlé, Heineken, Carlsberg, AB-Inbev, Procter & Gamble, Johnson & Johnson, Novartis, L’Oréal to name a few.

Preamble

It is common to meet commodity suppliers from mature markets like Europe whose strategy is mainly guided by the search for cost reduction and dominance by volumes. A strategy that once allowed these historic players to develop, but is maybe no longer suitable today?

Globalization has indeed favored the emergence of new commodities players, sometimes offering lower costs for a range of commodity products that are often similar in quality when compared to the offers available in Europe. However, after years of cost optimization and investment in new production capacities, some European commodity manufacturers soon reach the limit of their model, for technological reasons, among others (performance limits of the industrial tool), organizational (limits for reducing the wage bill and optimizing internal processes), financial (limits on investment capacities) or legal (limits for groupings of actors in the same sector, vis-à-vis the authorities competition).

At the same time, the world seems to be deeply marked by the advent of digital, opening up new perspectives in terms of services to individual consumers, notably in the name of ??the customer experience??. It is clear that trade aimed at professional customers (Business-to-Business) still pays little attention to services aimed at facilitating the relationship between a buyer and his supplier.

In this context, is the digitalization of the professional customer journey an axis of differentiation and value creation to be exploited in addition to a strategy of domination by costs and volumes?

In this introductory article to the opportunities offered by the digitalization of the customer experience in the sale of commodities, I propose to address the main sociological and organizational arguments that make the digitization of the customer experience a potential lever of differentiation. and value creation. Then, I propose to identify what are the priorities of Fast-moving consumer goods manufacturers in terms of digitization.

1 / Buyers are changing?

After more than ten years in the sale of commodities to Fast-moving consumer goods manufacturers, I have seen an evolution in their purchasing practices. In my opinion, we are a long way from the days when buyers did not have access to information and where their means of access to the product was to let the salespeople come to them, whether it was through the telephone, from physical visits, sending a brochure or catalog, or even trade shows.

The 2020 decade buyer is an individual, like you and me, who in his personal life has access to more and more services from his suppliers. We first think of our banking services, where it becomes normal to generate simple transactions through your application, without going through your advisor. We still have many examples around us, such as click-and-collect, and even home delivery, which has allowed us as consumers to optimize our time and no longer depend on the opening hours of shops.

Buyers are representative of the population, and millennials will represent up to 75% of the workforce in businesses by 2030. Also known as Generation Y, they are people born in the 1980s and early 1990s. The age has the common feature of having grown up surrounded by new technologies, but also of appreciating collaborative work. To moderate this, this expression of millennials encompasses a behavior, a way of being, because one can have a strong interest in new technologies and teamwork while being born before 1980.

Manners have evolved with the digitization of our society, reshaping our expectations and our practices. To understand the interest of professional customers in new technologies, I now suggest that you explore the evolution of the purchasing function within the Fast-moving consumer goods manufacturers.

2 / The purchasing function: a strategic role at the heart of value creation

The purchasing function has long been considered a support function, often unloved by suppliers because it has a single objective of reducing costs.

Accelerated by the numerous merger operations of the last decades, one of the largest of which is that of Anheuser-Busch InBev and SABMiller in 2016, aimed at creating market giants, it is from the 2000s that this purchasing function will quickly structure itself to become a strategic function of the company, with a full place in the management committees.

Thus, in the 2020s, the purchasing function is still targeting costs, but not only. Activities have diversified, among other things, around monitoring, risk management, but also innovation, and now social and environmental responsibility. Thus, the reduction in operational positions has benefited from the creation of strategic positions, fewer in number and often located at company headquarters.

“As hard as it has become to sell in today’s world, it has become that much more difficult to buy. The single biggest challenge of selling today is not selling, it is actually our customers’ struggle to buy”.

Brent Adamson Distinguished VP, Advisory, Gartner

The purchasing function has changed and become more complex over the years. In this context of the transformation of their profession, how are purchasing departments positioned vis-à-vis digitalization? What are their short-term investment priorities?

3 / Professional customers in the digital age

Access to digital directly influences how your customers use their time. A Gartner study found that only 17% of a buyer’s time was spent meeting a supplier in a meeting or video conference, compared to 27% spent doing independent research on the web.

This trend, already marked to this day, should continue to increase if we are to believe the digitalization objectives of most companies. And, according to the 2020 edition of the ??Trends and priorities of purchasing departments?? study, published by Agile Buyer with the CNA, 62% of purchasing departments have already implemented, or are in the process of doing so, a digital transformation strategy for purchasing. They were only 46% in 2019, a variation of + 16% in just one year, probably accelerated by the health crisis.

?Still, according to this study by Agile Buyer, the most advanced sectors in terms of the digitization of their purchases are tourism and transport, followed by communication and media, banking/finance/insurance followed by IT and telecoms. The agri-food sector, by comparison, is lagging, with only 9% of purchasing departments already involved in the digitalization of their processes. However, they show goodwill since 37% of them admit that this digitalization strategy is being considered and will be strongly deployed in the coming years.

Concretely, what are the digital solutions that will interest professional customers the most in the years to come? A PwC survey determined the main investment intentions in e-procurement solutions :

• To detail only the main trends, data analysis, and visualization tools are the most represented of the panel with investment intentions above 40%. By data analysis and visualization, we mean tools for creating dashboards to understand the essential information provided by big data.
• ?Automation of administrative tasks comes next with more than 30% of intentions when it comes to automating administrative tasks within the organization of these customers.
• ?S2C (Source-to-settle) also includes more than 30% of intentions. Source-to-settle is an integration of the procurement and purchasing processes. It covers the entire process from sourcing to paying for a product, involving sourcing, tendering, bidding, procurement, generation of purchase orders, receipt, and payment of invoices.
• ?P2P (Procurement-to-Pay) is then mentioned with 30% of intentions. Unlike S2S, this process is limited to the procurement of products. P2P refers to the automation of low value-added tasks in the procurement function covering ordering, receiving, payment, or even accounting for goods and services.
• ?Risk limitation, and risk management, come next with 28% of intentions. This decision support process allows buyers to better identify the risks of supply chain disruption such as fraud, quality problems, or delivery risks.
• Supply chain traceability is also cited with 28% of intentions. Indeed, the possibility of tracing flows in transit makes it possible, among other things, to facilitate reception in warehouses, to quickly determine the state of floating stocks, and also to greatly improve planning or facilitate inventories.
• In the last place, the virtual purchasing assistant only retains 12% of intentions.

This PwC survey, therefore, shows that the purchasing function is primarily interested in the collection and use of data. And the automation of low-value, repetitive tasks, ranging from sourcing to invoicing, is also a major trend.

Conclusion

Improving the professional customer journey through digitization can be seen as a growth driver for the suppliers of commodities products. According to Mc Kinsey, this axis of improvement for the benefit of the customer also makes it possible to reduce the churn (loss of customers or markets) by up to 15% and to increase the chances of success of new businesses from 20 to 40%, while reducing service costs by 50%.

Also, digitization is already well underway in most companies, especially the service sector, gradually followed by the agro-food, pharmaceutical, and chemical industries. An evolution of practices, driven by a profound change in the relationship of our society to digital, will continue to develop in the coming years. Digitization will notably allow the automation of tasks with low added value, but also the improvement of decision-making through data processing.

Finally, let us add that the digitalization of the customer journey promises to be a standard in the making, which is preparing to profoundly modify the competitive landscape of the supply of commodities, and which will mainly benefit companies that have been able to change their development strategy in profit from the client-consumer axis.

Did you like this article and would like to learn more about the topic of value creation in the field of commodities? If so, you are welcome to share ideas that could be the subject of other articles. You are also welcome to contact me to propose editorial collaborations or to be interviewed.

Thanks again for your time and your interest in value creation.

Elodie Colin-Petit

https://redpointblog.com/

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Sources

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