November 2019:

Untapped Potential of the IoT in CPG

Emerging technologies like AI are bringing the power of prediction and more to the CPG value chain.

The IoT (Internet of Things) offers all the potential of an automated, end-to-end cycle of action/reaction—and, suffice it to say, there is a lot of potential. Thanks to connected devices and systems and the data these devices and systems collect and analyze, the IoT can define consumer and industrial activity in a way that turns industries upside-down. The CPG (consumer packaged goods) industry is one sector that’s using the IoT in some creative ways, but there remains a lot of untapped potential for emerging technology disruption and innovation within the CPG value chain.

Mark Cohen, director of retail studies and adjunct professor at Columbia University’s Graduate School of Business, says there are some obvious opportunities for the CPG industry to benefit from IoT technologies.

“Consider that a vending machine is typically serviced episodically by a service person who visits the machine periodically with a large cache of products and then refills the machine based upon what he or she observes the machine’s replenishment needs are,” he says. “Alternatively, an IoT ‘smart’ vending machine can transmit realtime selling and inventory information ahead of an episodic service call.”

Cohen says in a sense, the IoT is still a loosely defined and somewhat ambiguous characterization of technology caused by the fact that it is still a relatively new idea in practice. “Some expressions of IoT have proven to be way too premature,” he explains. “I’m thinking of the connected household appliance that ‘knows’ when it’s time to reorder consumables and goes ahead and does it. We may be headed there, but we are not there yet.” For example, he says in the future, companies like Amazon, which is pushing the envelope with its Amazon Go stores, will take strides in fully automating the CPG retail industry.

More Disruptive Technologies in CPG

AR/VR

These technologies could allow consumers to interact with products virtually before they buy. AR and VR could revolutionize employee training throughout the CPG value chain, as well as enable immersive product marketing and advertising.

Blockchain

Consumers are increasingly demanding visibility into processes, and blockchain tech applied to CPG use cases can deliver this added transparency. Consider the value the ability to track and monitor the origins and histories of products and goods would add to a transaction for a modern, conscientious consumer.

Smart Packaging

The market for smart packaging could reach $39.7 billion by 2020, according to MarketsandMarkets. Smart packaging applications can be applied to improve inventory and lifecycle management, preserve product integrity, and improve the user experience, to name just a few.

Disruptive tech is coming to CPG, including blockchain, AR (augmented reality) and VR (virtual reality), smart packaging, and, notably, AI (artificial intelligence). These technologies will revolutionize logistics in CPG—for instance, by reducing supply chain gaps and enabling more collaboration within the value chain. It will drastically improve brands’ insight into their customers’ habits, preferences, wants, and needs, and it will enable hyper-personalization. It will further evolve the retail experience, and, as Cohen hinted at, it will help companies capitalize on the power of prediction—staying ahead of buying trends, enabling predictive maintenance, supporting proactive reordering, and so on.

IIoT = Traceability and Optimization

From an industrial point of view, the IIoT (industrial IoT) is enormously attractive to CPG companies. Simone Gianotti, EcoStruxure business development manager at Schneider Electric, says the IIoT is gaining momentum in the CPG market, and its adoption is becoming more the rule than the exception. “Many companies have already started exploring digital, connected solutions in their operations. They have seen the benefits of those initial investments and are working to build on them by connecting more and more pieces of their operations,” Gianotti says. “These connected technologies are allowing the CPG segment to optimize operations and benefit business in different ways, from offering greater process insight and efficiency to supporting the workforce with new training tools and enhanced machine safety.”

From Gianotti’s perspective, there are two key benefits of leveraging the IIoT throughout the retail value chain: end-to-end traceability to increase transparency and process insights to reduce cost. “First, the traceability allows CPG companies to follow their products from the initial stage of how ingredients are sourced through the delivery and sale of the products themselves,” he says. “Using milk as an example, this would allow a diary company to track from the farm where the cow is milked to the store where the consumer eventually purchases that milk. This ability provides a new trust with transparency through the complete value chain.”

Second, process optimization allows players throughout the value chain to reduce their operating costs and increase process efficiency. “By having greater insight into their respective processes, operators can understand those systems better and make more informed decisions, implementing realtime changes to optimize those operations,” adds Gianotti.

“By monitoring power usage, tracking machine cycles, and scheduling maintenance, operators can increase production and reduce costly downtime to increase profitability.”

The IoT also offers tremendous potential in logistics and customer service. Rajkumar Venkatesan, thought leader in marketing, CRM (customer-relationship management), and automation and a professor in the University of Virginia’s Darden School of Business, says IoT technologies are tracking deliveries to stores and providing customer service at the point of consumption. “For example, 3M (Filtrete) smart filters have sensors that help with better air filter replacements and air quality monitoring,” he says. “In addition to the 3M example, (Coca-Cola) Freestyle vending machines have sensors that transmit information back to the company about consumer customization of drinks. This provides Coca-Cola (with) better stock flavors in the vending machines and also (helps them) introduce new products.”

The next stop for many industries looking to drive digital transformation, including CPG, is AI. AI enables future machine-driven decisions and actions to be made based on realtime data. In the CPG world, AI has the potential to automate the historically semi-automatic decisions that have driven replenishment and production scheduling. Venkatesan says using data and AI is also the key to personalizing the all-important customer experience.

Peggy’s Blog

Microsoft: Zero Sum

For this blog I want to talk about the race to the cloud. In fact, I am going to focus on Microsoft Azure IoT (Internet of Things) specifically because I spent a lot of time interviewing Sam George, vice president of Azure IoT at Microsoft.

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The Dreaded “R” Word in Construction

The numbers are in and they don’t paint the picture many had hoped. Has the U.S. construction market reached a tipping point? Is it headed for a recession?

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The Cost of Cyber (Ouch)!

With an increase in the amount of advanced technology being used by the trades—everything from wearables to drones to automated equipment—the construction industry is beginning to recognize the risks involved in a connected world.

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PTC and Onshape Lead SaaS

In what will be the biggest acquisition to date for PTC, President and CEO Jim Heppelmann announced the company has signed an agreement to acquire Onshape, which creates a SaaS (software-as-a-service) product development platform combining CAD (computer-aided design) with data management and collaboration.

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The CPG Industry Faces Major Challenges

Activist

Changing Consumer Tastes

New Entrants

Dispersed Points of Sale

Source – CB Insights

AI and the Power of Prediction

Steve Towarnicki, vice president of CPG engagement at Symphony RetailAI, says AI-enabled platforms and solutions are helping CPG companies continuously process massive amounts of data that would have previously taken multiple resources and reports and days or even weeks to analyze and take action based on these insights. “The concept of machine learning, where algorithms are continuously learning and ‘always-on’, has the abilities to synthesize multiple data inputs, from supply chain to out-of-stocks, from commodity pricing to exchange rates,” he says. “Processing all of these data inputs allow CPGs to identify the root cause of issues and identify areas of opportunity across all aspects of business planning.”

As more points of data become available, AI will continue to gain importance for retail and CPG as a whole. “With digitally native brands entering into the traditional retail space, they bring with them sophisticated levels of analytics and established AI platforms, allowing them to enter the space with a keen understanding of their customers and the merchandising tactics to keep those customers engaged,” adds Towarnicki. “The same is true with CPGs as new entrants identify shopping trends and introduce innovation to meet the needs of shoppers. AI platforms can help existing CPGs identify and activate against emerging trends, with the objective of getting to market faster than new or existing competition.”

The entire retail value chain will continue to evolve alongside AI and other emerging technologies. CPG companies, including retailers, have more data available today than ever before, and as AI platforms become more sophisticated, they will be able to leverage this data to create insights throughout the value chain at a speed not previously possible.

Leading consumer-packaged-goods companies are addressing the changing business landscape.

Source – Exhibit 1 – From McKinsey Report

“From how innovations are brought to market, all the way through to which products are shipped to individual stores and how prices should fluctuate based on realtime market conditions, AI platforms and other technologies will enable CPGs to capitalize on integrating mass amounts of data sources into these business decisions,” Towarnicki says. “The speed to insights and the ability to understand and navigate an ‘always connected’ shopper universe will be critical to the success of both CPGs and retailers today and in the future.”

Amishi Takalkar, CEO of Nailbiter, a videometrics technology platform provider for the retail industry, says there is still a lot of untapped potential in how CPG companies apply AI. “One of the challenges of applying AI to CPG is the very low investment in IoT technology by CPG manufacturers at the point of sale,” he says. “Fifteen years ago, it was widely believed that technologies like RFID (radio-frequency identification) would be as ubiquitous as bar codes in CPG products. Despite the fact that CPG products have been driven towards premium pricepoints and the added complexity of e-commerce chains, neither manufacturers nor retailers have (made) significant progress in consumer IoT.”

“From how innovations are brought to market, all the way through to which products are shipped to individual stores and how prices should fluctuate based on realtime market conditions, AI platforms and other technologies will enable CPGs to capitalize on integrating mass amounts of data sources into these business decisions,” Towarnicki says.

“The speed to insights and the ability to understand and navigate an ‘always connected’ shopper universe will be critical to the success of both CPGs and retailers today and in the future.”

Amishi Takalkar, CEO of Nailbiter, a videometrics technology platform provider for the retail industry, says there is still a lot of untapped potential in how CPG companies apply AI. “One of the challenges of applying AI to CPG is the very low investment in IoT technology by CPG manufacturers at the point of sale,” he says. “Fifteen years ago, it was widely believed that technologies like RFID (radio-frequency identification) would be as ubiquitous as bar codes in CPG products. Despite the fact that CPG products have been driven towards premium pricepoints and the added complexity of e-commerce chains, neither manufacturers nor retailers have (made) significant progress in consumer IoT.”

Takalkar sees opportunity for premium CPG products, especially those in emerging categories, to leverage the IoT at the consumer point-of-purchase decision to gain marketshare in rapidly changing consumer trends.

“For example, if I were launching a new better-for-you CBD (cannabidiol)-infused personal care product, I would want to maximize my price at shelf and the resulting margin without losing out on the right value-driven consumer,” he explains. “With retailer cooperation, a system can be designed where a consumer’s mobile phone allows the brand to target and deliver variable pricing offers to the consumer as they are shopping in the aisle. These types of offers when properly customized have shown to increase brand and category sales. Without IoT, this degree of individual customization is nearly impossible.”

Qingbin Yuan, senior director of international R&D (research and development) at The Hershey Co., says emerging technologies are changing the business model of CPG industries. “Emergence of digital technology and AI augments human capability limits significantly. E-com opens a new model of business. This has led (to) a radical shift in the CPG industry,” Yuan says. “For example, it lowers the entry barriers to the industry due to the online marketing, reduces the innovation cycle due to the AI-assisted innovation and product development, and brings the companies much closer to the consumers through AI consumer-trend prediction.”

AI platforms are helping CPGs make more informed business decisions about everything from R&D and innovation planning to which promotions are most effective based on inventory supply, weather patterns, and the current competitive landscape. Hershey is one example of a company leveraging emerging technologies in research and production development. “We are using AI technology to predict consumer trends and recipe development,” says Yuan.

CPG companies that are leveraging the capabilities of AI are able to capitalize on insights and make better business decisions that lead to profitable growth. For instance, AI can incorporate non-traditional data sources like weather, political or cultural events, and even consumer sentiment into the equation. Nailbiter’s Takalkar says: “Everyone knows a cold winter drives soup sales. However, AI can parse that phenomenon more acutely and predict based on local soup flavors (what) will do well during the next blizzard.”

Hershey’s Yuan suggests the IoT is integral to the future of the CPG sector, and emerging technologies are closing the gap between small companies and startups (especially digital natives) and larger, more established CPG companies. Even though many organizations within the CPG value chain are leveraging IoT and IIoT technologies already, a lot of potential remains. Companies shouldn’t leave these resources untapped for long. “Emerging technologies like IoT and AI are rapidly changing the way of working and shaping the future of CPG industry,” Yuan concludes. “No one can afford ignoring them. For a successful future R&D, companies have to build (emerging tech) into their daily life.”

Want to tweet about this article? Use hashtags #M2M #IoT #CPG #retail #manufacturing #consumerpackagedgoods #AI #artificialintelligence #blockchain #AR #VR #augmentedreality #virtualreality #supplychain #IIoT #industrial #data #analytics

Transcription

Episode 641 | 11.19.19

Sam George: The State of IoT, Cloud, Edge, and AI

Peggy and Sam George, corporate vice president Azure IoT, Microsoft talk about the state of the IoT (Internet of Things) space, where it’s headed, and how the cloud, the edge, and AI (artificial intelligence) are impacting several vertical markets.

Guest Contributors