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Amidst Digital Disruption: Managing Constraints and Opportunities Beyond Your Control

Businesses and industries of all types are affected by their internal circumstances and choices but are equally, if not more so affected by things beyond their influence or control.

The continued war in Ukraine has strained the global wheat supply, sending food & beverage manufacturers, bakeries, and home chefs scrambling to identify alternative sources for staple ingredients like wheat flour

And fertilizer maker Mosaic missed Q3 profit estimates partly due to Hurricane Ian, which struck Florida in late September 2022. Mosaic saw a 10% drop in sales after its Tampa-based operations were damaged by Hurricane Ian, as well as the rail and port closures that followed.

Whether it’s changing regulations, global trends, natural disasters, or a shift in consumer preferences, these factors must be accounted for when planning for any major business initiative, including digitalization.

Here are just a few of the external factors that leaders in consumer products industries need to take into consideration for their potential to threaten business operations: 

Sustainability Challenges

A 2021 survey by the Boston Consulting Group found that 75% of consumers consider a company’s sustainability efforts when making their purchasing decisions, and 73% said they would change their consumption habits to offset their environmental impact.

Companies are under more pressure than ever to implement and expand sustainability measures such as reducing emissions, waste, pollution, and toxicity while at the same time decreasing the impact of their operations on land, water, biodiversity, and the atmosphere. Consumers, investors, and communities are all adding to that pressure, while regulations require increased disclosure of sustainability efforts

“One of the biggest changes has been the pervasiveness of these claims,” La Toya Sutton, Director of Legal, Marketing & Communications at Clorox, said during the Veeva Industries’ 2022 Virtual Summit. “These are not new concepts, but the number and the specificity that we're seeing with these types of claims grows and grows every year.”

WATCH “SUSTAINABILITY CLAIMS - A DOUBLE-EDGED SWORD PANEL” FROM VEEVA INDUSTRIES’ 2022 VIRTUAL SUMMIT SESSION ON-DEMAND

Although companies across all industries feel that pressure, it is most intense for consumer products companies and their suppliers. A global survey conducted by Deloitte across industries, for example, found that 75% of executives feel a large or moderate amount of pressure from consumers/clients to act on climate change, and 77% feel pressure from regulators and governments.

“Consumers… increasingly want to purchase products they view as sustainable across the entire value chain,” said Veronica Poole, Vice Chair, Corporate Reporting and Sustainability Transparency Advocate with Deloitte UK. “They also want to believe that their consumption habits won’t negatively affect the environment.”

In response, companies are announcing new voluntary initiatives and complying with disclosure requirements, but doing so presents a huge challenge. Transparency regarding sustainability claims requires businesses to have insight not only into every aspect of their own organization but every organization across their entire product lifecycle as well, including those along the supply chain.  

Stakeholders are increasing their demands for transparency and will hold companies accountable. Companies that cannot provide evidence of their sustainability achievements risk the loss of both sales and investments.

Rising Inflation

Inflation nearly everywhere in the world is the highest it’s been since the early 1980s, putting pressure on profitability and creating a change in the expectations of consumers about prices. In comparing the current pandemic-induced inflationary spiral with previous episodes of high inflation, the White House Council of Economic Advisors finds it similar to the one after World War II due to the dual effects of limited supply and pent-up demand. According to the Council, the similarity “suggests that inflation could quickly decline once supply chains are fully online and pent-up demand levels off.” 

Geopolitical uncertainties, including the war in Ukraine, are also adding volatility to prices that prove this issue will continue. “Even with the likelihood that inflation has peaked, inflation will still remain elevated for some time, as supply chain issues persist and there is still plenty of instability with the Ukraine war, which has caused significant swings in energy prices,” says Zach Stein, Chief Investment Officer at Carbon Collective in an article from Time

Evolving Consumer Behaviors and Expectations

The COVID-19 pandemic helped drive new trends and accelerated other shifts in consumer behavior. Some of those changes are likely temporary, but others will likely be with us for years, if not permanently. Additionally, today’s consumers are more empowered than ever before, and keeping up with their changing expectations requires a new level of customer obsession.  

Changes included an accelerated adoption of e-commerce. A recent article from McKinsey noted that during the pandemic, “homebound consumers abandoned ingrained shopping habits, hurtling e-Commerce into hyperdrive and compressing a decade’s worth of digital adoption into 100 days.”

“Everyone would agree that the pace of change has increased massively in the past 5-10 years,” said Alberto Prado, Head of R&D Digital and Partnerships, Unilever during the Veeva Industries’ Virtual Summit. “It's not necessarily only what and why; it's how consumers purchase. We've all seen the increase in online and driven by technology, but it’s not just the adoption of technology that drives the revolution; it's the change of habits.”

WATCH ‘UNLOCKING INNOVATION ALONG THE CONSUMER PRODUCT VALUE CHAIN’ FROM VEEVA INDUSTRIES’ 2022 VIRTUAL SUMMIT SESSION ON-DEMAND

And as businesses introduced new ways to connect with consumers, those consumers grew used to the changes. They’re now conditioned to be able to get what they want whenever they want, and consumer expectations will only continue to rise.

E-commerce is also making brand loyalty harder than ever to maintain. It’s easier than ever for consumers to switch to brands that reflect their values. This is both a challenge and an opportunity for brands; a challenge when it comes to keeping their existing customers and an opportunity to win new ones.

At their core, these trends are putting increased importance on companies to develop a deeper understanding of their customers. According to McKinsey, “meeting [consumers’] lofty expectations requires real-time analytical horsepower to process massive amounts of granular consumer data. Only then will you gain the 360-degree view of customers needed to serve their unmet needs and deliver the wow factor with an astonishingly personalized experience.”

Complex Regulatory Pressure

As a result of increased consumer pressure, regulatory authorities have implemented more stringent rules and guidance across industries. The increasing complexity of regulations, combined with more stringent disclosure and reporting rules, makes complying with those regulatory rules an increasing challenge.

Depending on the industry and regulation, companies now face issues including increased disclosures, the outlawing of ingredients they’ve used for decades, higher costs due to new levies such as the “plastics tax” based on non-recyclable plastic consumption, and a variety of other impacts. And regulations aren’t likely to be loosened any time soon.

For 2022, the proliferation of new rules and regulations is expected to be particularly focused on sustainability, with increased calls for transparency. Concerns over greenwashing and other sustainability claims are likely to cause regulations to tighten further. Additionally, the European Union’s Green Deal calls for all packaging in the EU area to be reused or recycled by 2030, while the Circular Economy Action Plan provides for products to have long life cycles and be repairable (‘right to repair’).

How Global Supply Chain Disruptions Affect These Key Business Issues 

The COVID-19 pandemic has caused supply chain disruptions across virtually every industry. Factors affecting the supply chain include labor shortages, shifting product demand, a lack of components and raw materials, cargo capacity, and bottlenecks at ports. It’s unclear how long these issues may linger.

These disruptions, combined with higher prices and the implementation of increased safety measures, ultimately mean higher costs for businesses and consumers. Additionally, consumers are frequently unable to obtain the products they see, prompting shifts to customer behaviors and loyalty.

“Over 60% of US consumers have experienced out-of-stock items in the last three months of 2021, and when this happened, only 13% waited for the item to come back in stock versus the 39% who switched brand or products and the 32% who switched retailers,” according to a recent McKinsey article. “Additionally, we see both increased trading down across income groups with trading up increasing as well among higher income groups.”

Issues involved in supply chain disruptions include:

Cybersecurity 

Supply chain cyber-attacks are on the rise, and an attack on a single supplier can be enough to bring down a whole network of providers. Companies must conduct third-party risk assessments to ensure their suppliers’ cyber security is up to par.

Sustainability 

COVID-19 has exacerbated weaknesses along the supply chain and the third-party risks that companies are susceptible to. Companies may not share the same values regarding environmental risks, so businesses must vet their partners across the value chain to ensure they have a common approach to environmental considerations.

Workforce Trends 

Retaining workers is an issue across the supply chain, causing mass delays, supply shortages, increased wages, and the increased cost of consumer goods. Organizations that utilize third-party logistics services are seeing a dramatic rise in shipping rates as a result.

Consumer Behavior 

Over the course of the pandemic, many consumers changed the types of products they purchased. Unexpected shifts in demand had major impacts on those supply chains that were not sufficiently resilient. The rapid rise of e-commerce also resulted in a dramatic shift in the transportation and delivery of goods, increasing pressure on an already stressed system.

Regulatory Pressure

Increased regulations are among the top supply chain risks. Manufacturers need to be confident they can access the critical supplies they need to innovate, compete globally, and support their customers. Regulatory uncertainty can incentivize offshore product sourcing, complicating compliance management.

Trends and Tensions Threaten Businesses 

Companies are up against a host of interacting internal challenges and external forces these days, and the current state of affairs isn’t sustainable.

Although many of these challenges can be addressed via digitalization and cloud adoption, undergoing the transformation is difficult because it involves culture change and must not compromise cyber security.

Internally, workforce resignations and reshuffling mean companies are under increased pressure to ensure employees are efficient and engaged. Externally, suppliers, regulators, and consumers are putting pressure on companies from all directions. Suppliers are having difficulty always meeting demand, they’ve increased their prices, and they have a mixed ability to meet companies’ needs for sustainable supplies and transparency. Regulators and consumers are demanding increased sustainability practices and transparency. Consumers want products and experiences that are tailored to their preferences but balk at increased prices.

These trends and tensions are helping to drive the shift to a new business imperative.

Solutions such as Veeva’s enable leaders to protect their brands, raise the industry bar, and advance their reputation among consumers, employees, global regulatory bodies, suppliers, and manufacturers by making trust core to a company’s digital transformation strategies. Veeva can help build and maintain a competitive lead through a commitment to continuous innovation and by shifting market share in your favor with the ability to respond to industry trends and consumer behaviors faster.

For more information on how Veeva can help your organization with its digital transformation strategy, reach out to one of our experts.

Veeva Industries

Posted by Veeva Industries

Veeva builds industry cloud software to help consumer goods and chemical companies bring innovative, high quality products to market with more agility.