Key IT issues
Maintaining margins: Rising prices for oil and other raw materials means the pressure is on FMCG companies to maintain their margins. CIOs are looking to simplify systems and squeeze as much business benefit from them as possible.
Reducing costs: Consolidation is helping organisations to reduce IT operations costs and allowing them to look at innovative ways of using IT to help the business.
Managing data: All FMCG companies have a vast raft of data available to them and most are now intent on using sophisticated business intelligence tools to squeeze the maximum amount of critical sales information out of systems.
Know the consumer
Fast moving consumer goods (FMCG) is a market that everyone is an expert on, because everyone is a consumer. Brands like Kleenex, Pepsi, Liptons, Hellmans and Lux are truly global and are valuable in their own right. The emphasis for their manufacturers is to react quickly to trends, publicity and demand, while at the same time protecting the value of the brand.
Noreen Hussain, head of research and quality at SKOPOS market Insight, says the FMCG industry, particularly the food and drink side of it, has to react quickly to current affairs. “Things that really matter to society, like health concerns, government directives or media generated issues mean the industry has to be able to respond very quickly. It has to be seen to react and take action.”
For example, once Cadbury was aware of its manufacturing problem and the adverse publicity it was having at the beginning of the year, it had to take immediate action and had to be seen by consumers to take it very seriously, says Hussain. Otherwise it would have affected sales and the brand value would have been damaged. “Consumer confidence is paramount to the FMCG companies,” she says.
High-profile campaigns like the School Dinners waged by chef Jamie Oliver to get children to eat more healthily, mean that companies need to respond quickly and keep customers confidence if they are to avoid losing sales.
“Environmental issues like recycling drives and reducing packaging have to be considered by the FMCG companies and their wholesale buyers, the supermarkets,” says Hussain.
As well as reacting fast to external factors, the industry has to continually look for ways to maintain margins and reduce costs.
CIOs in the industry know that effective data management and use of business intelligence tools will help with this. They are currently engaged in squeezing as much information from the data as possible. As part of this drive, many companies in the sector are intent on system consolidations and simplification, so that they can use the data produced from these systems to target their markets.
Like the rest of industry, FMCG has also suffered from the price increases of oil and other raw materials which, in turn, have increased the pressure to cut costs out of other areas, like IT. Bob Barbiaux, IT director EMEA at Kimberly-Clark, says: “Finding growth is a constant pressure as oil and raw material prices continue to rise. There are also emerging geographic pressures where new retailers and discounters are beginning to compete with us,” he says.
There is no doubt that IT is making a fundamental difference to the way FMCG companies do business. Neil Cameron, CIO at Unilever says: “Business and technology innovations which provide improvements in our supply chain, reductions in cost and speed up customer response times are fundamentally changing our business.”
With those changes come better representation in companies’ strategic meetings and a better understanding of the job CIOs are doing by the board.
For example, Perry Childs, CIO of PepsiCo for the UK and Ireland, has introduced a business development group, where senior executive stakeholders meet to talk about IT strategy. It considers process improvements and allows Childs to outline IT strategy and plans for the year ahead.
“We have also introduced a performance promise, which is like a balanced scorecard, which is working quite well,” believes Childs. “People are taking it very seriously and although it is only sent to the top 20 senior executives, they are passing it on and we are getting feedback from lower down the organisation.”
Headquarters: West Malling, Kent
Number of employees: 2,500 (UK)
2005 sales: $15.9bn (global)
Head of IT: Bob Barbiaux, IT director EMEA
Kimberly-Clark’s current business imperatives translate directly into IT’s two main strategic thrusts: reduce costs to maintain margins and innovate to drive growth, says Bob Barbiaux, IT director EMEA at Kimberly-Clark. “Margins are continually under pressure as oil prices rise and retailers and discounters drive down prices,” he says.
“For IT, we first look to make the backroom plumbing as clean and efficient as possible to keep costs down. Then we can look at the front-end more creatively and work at introducing innovation there.”
The FMCG firm runs a SAP shop with four regions, EMEA, US, Asia-Pacific and Latin America, all reporting into a global CIO, who in turn reports to the CFO. Like many FMCG firms, finance is centrally controlled and IT is an arm of finance. Kimberly-Clark is in the midst of a global business plan, which includes removing costs from the business, although Barbiaux says IT has historically had a low cost base.
Keeping costs down
“We have a single global datacentre and desktop image, plus a small number of global suppliers, so our cost base is already quite competitive,” he says. “While we look to innovate and work creatively, our strategy historically has been to wait for technology to prove itself before we dive in. Looking forward, we need to maintain our solid, reliable foundation but also look to be quicker and more proactive.”
"The key is in defending commonalities for efficiency and promoting differences where real value can be generated"
Bob Barbiaux, IT director EMEA, Kimberly-Clark
The single global datacentre is located in the home of Kimberly-Clark, Wisconsin. All the company’s desktops and networks are consistent and SAP is the basis for its applications infrastructure. “We find we make fewer mistakes that way. We have not had to go down the consolidation and simplification path to reduce costs because we are already operating our infrastructure globally.”
Given the size of the organisation this is no mean feat but Barbiaux says it has been part of the culture of the company to look for centralised control. “On the whole, people appreciate it because they can take their work anywhere around the world but it does require discipline and sometimes saying ‘no’ – which can be frustrating. On balance though, it speeds things up not slows them down.”
EMEA has an IT team of around 170, of whom 70 per cent are in the UK, although it is currently undergoing a review to its business support delivery, with a view of lowering costs in some areas. Kimberly-Clark already does some offshoring in India and has its own web development offshoot in Thailand. It also uses its IT operations in Buenos Aires for some of its development and Barbiaux says it is considering doing more offshore.
Currently IT is trying to tame what Barbiaux refers to as an ‘information mountain’, by putting in place global data management systems. “Our strength in the past has been in efficient transaction systems. The implementation of SAP has brought vast volumes of data on how our business operates. We need to turn that data, as well as other structured and unstructured data from other sources, into useful and actionable enterprise business intelligence.”
The department is also working on a prestigious global CRM project for the business-to-business part of Kimberly-Clark with the US operation on complimentary systems for pricing and contact management. Kimberly-Clark has three distinct customer sets: consumers – where large organisations like Tesco and Wal-Mart are the customers; professional, which sells through distributors to hotel chains and other businesses; and Healthcare, where products are also sold through distributors to hospitals. Barbiaux says that the ‘customer touch management’ system has begun with the last two business-to-business areas of Kimberly-Clark. It is built on top of the SAP CRM environment established for the consumer business which was aimed at improving marketing and brand management.
The firm is using a single global CRM landscape for the project, which does present some interesting challenges. “Governance of a single system used across different geographies and businesses can be difficult,” he says.
“The key is in defending commonalities for efficiency and promoting differences where real value can be generated.”
Headquarters: Theale, Reading
Number of employees: 5,000 (UK & Ireland)
Last full-year revenues: $32.6bn (Group 2005 figures)
Head of IT: Perry Childs, CIO UK & Ireland
PepsiCo International manufactures and delivers a range of FMCGs in the UK and Ireland including Walkers, Tropicana, Quaker and PJs, as well as Pepsi branded goods.
Constant process improvement and customer service is the fundamental driver for IT at the organisation according to Perry Childs, CIO UK & Ireland and the IT operating plan is periodically refreshed to reflect this.
Although global functions, like HR and finance, are overseen and driven by PepsiCo International, the organisation is trying to harmonise operations with other regions using the same operating model for process and technology wherever possible but local productivity and service remains at the core.
There are four different factors affecting demand on the IT function, according to Childs: primarily the local business; PepsiCo International; internal IT delivery and external advances in technology.
“There is very tight financial control of IT at the organisation with IT costs accounting for less than 1.5 per cent of net revenue annually,” says Childs. “Except for common good infrastructure projects, which are funded by IT, all projects are funded by the businesses themselves. Previously funding came by the ‘IT budget’, which wasn’t the best way to prioritise requirements or improve efficiency. This change in the finance funding model has helped us to get really close to the business and what it needs. It gives our users and customers a different mindset for driving value from IT.”
Childs has been in his role for just over two years and says he has moved the focus for IT tools to the commercial part of the business.
“I looked back at previous projects and there was an emphasis on manufacturing and supply chain but there were few commercial and sales tools in place,” he says. “We are now planning substantial technology investment in the sales force and have recently completed a successful broadband and handheld implementation which means that the sales team no longer has to go into an office just to get data and update the systems. It gives everyone involved a far better level of remote service.”
The company uses Oracle, IMI and bespoke S&D solution. Childs says after doing an assessment the core enterprise architecture will be sufficient to move operations forward over the next four years, while the company is preparing to move to SAP.
“We are simplifying our systems footprint and taking control over master data management,” he says. “The goal is to sweat the current assets and consolidate our niche solutions, while at the same time preparing for the future.”
"Nowadays users probably have greater technology capability at home than on their desks, so managing their expectations can be challenging"
Perry Childs, CIO UK & Ireland, PepsiCo International
As the IT architecture is being simplified, his team will also be looking for business transformation improvements and how best to manage the current environment.
“We will exploit technology where it makes sense,” says Childs. “We will also raise IT’s capabilities through better vendor management and process improvement leading to lean manufacturing and improved service management. Nowadays users probably have greater technology capability at home than on their desks, so managing their expectations can be challenging.”
Over the next three years, he will continue to further integrate the IT functions where appropriate. He already claims some success at this. “The IT function has a good operating model and we are now reorganising this to focus more on the customer experience,” says Childs. “If those basic services – like broadband, email support and desktop – to our customers are right, then that will help to engage the business with other forward thinking strategies.”
Childs has introduced a process improvement council, where senior executive stakeholders meet to engage on the IT business development priorities. The CEO and CFO also do regular reviews with IT, which Childs believes is critical in making progress.
“We now have regular meetings and jointly looking at ways to raise the visibility of the IT function,” he says.
Number of employees: 220,000 (global)
Last full-year revenues: £27.7bn
Head of IT: Neil Cameron, global CIO
Anglo-Dutch consumer goods giant, Unilever produces 400 brands, in 14 categories of food, home and personal care products. It operates in nearly 100 countries, has 365 manufacturing sites and employs more than 220,000 people.
Global CIO, Neil Cameron, says the IT operation has a number of themes on which it will be concentrating over the next two years. The first is the IT architecture. “We have created clarity in the IT ecosystem and have made choices on strategic partners like SAP and Microsoft. We will now be driving value from those relationships.”
Cameron explains that now there are fewer, bigger players, especially in the software market, so there is less choice but clearly the decisions made are very important. “In the past you could choose best-of-breed products but now the choices you make dictate the ecosystem of smaller players under them. You have to be sure that you can drive value from the relationships you have with the whole ecosystem.”
"We have created clarity in the IT ecosystem and have made choices on strategic partners like SAP and Microsoft. We will now be driving value from those relationships"
Neil Cameron, global CIO, Unilever
The company will be completing the convergence programme that it began two years ago, when it took a careful look at strategy, regrouped and focused on growth. One Unilever was the company’s plan to cut 700 million euros from costs through streamlining and simplification, by this year.
The company used to operate as a series of federations. For example, in Europe there used to be two systems for food and personal but now the organisation operates as one, he says.
IT is now closely aligned to the business both globally and regionally, and business processes and information have to run as a single entity, as part of One Unilever. “We have worked very hard over the last two years to get the basics right,” says Cameron.
“The success of the systems convergence programme means we are now using the things we invested in and have achieved under One Unilever. This has meant company wide changes and the IT organisation has changed significantly too. We will be driving efficiencies and implementing programmes to unify the businesses geographically.”
Cameron will also be closely focused on making the outsourcing deals struck in the last year work. For example, the regional deal Unilever struck is for a seven-year contract with IBM to outsource financial transactional services. The contract covers more than 20 European countries and is part of the One Unilever streamlining programme. IBM will provide financial services including general accounting from its centres in Portugal, Poland and India.
As a result of the outsourcing, the IT department will be creating a new career framework for the people it has retained.
“We will be looking to motivate them, to help them consider the changing nature of IT and to look at changes in the way we work,” he says.
Part of this change involves using technology innovations such as collaborative working, mobility and two-way communications, which are all high on the agenda for the next couple of years. Cameron says the company is looking at information and back-to-business programmes centred on its global customers, like Wal-Mart. It is also wants to improve customer centred systems at regional and local levels for customers like Sainsbury, which only have a local presence.
Cameron says he will also be looking at the next phase of significant enterprise system and evaluating opportunities in areas like product lifecycle management.
On the other side of the business, IT continues to work with Unilever’s scientific research and product innovation.
“We are supporting product R&D from an IT perspective,” says Cameron.
“It is very interesting and challenging working with the scientists. The process goes the whole way from research and innovation concepts through to product launch. Trying to get the balance right is important and the support comes from IT.”