Changing consumer behavior and the increasing importance of data analytics have disrupted the linear value chain in the FMCG industry. FMCG brands in emerging markets, who have traditionally depended on manual processes, now recognize the need to adopt digital solutions that offer superior, personalized services at lower costs.
However, cost pressures have continued to rise, with the average CPG company spending up to 21% of revenue on SG&A costs, the highest of any industry. These high SG&A costs are linked to the inefficiency of the traditional sales model still employed by brands, where hundreds of field sales representatives must visit distributors and merchants to take orders. In a bid to improve cost management and increase efficiency, FMCG leaders have turned to digitalization, as 76% of FMCG leaders plan to leverage digital solutions to reduce costs by up to 15% over the next 12 months.
Enterprise Resource Planning (ERP) systems have long been the preferred solution by FMCG brands and large distributors to unlock digital capabilities, but no significant progress has been made, especially across emerging markets. Many brands that have adopted ERP systems still depend on manual sales processes and lack visibility across the supply chain, with 46% of FMCG leaders saying they feel unprepared to meet their cost-reduction targets. FMCG brands need a newer, cost-effective, and more efficient digital solution to reduce costs successfully.
Why ERP systems are not enough for FMCGs
Enterprise Resource Planning (ERP) was a term first coined by research firm Gartner in 1990 to refer to a system of integrated software applications that standardizes and integrates business processes across various departments in an organization. For many FMCG brands and large distributors, ERP systems are the backbone of their IT systems, allowing multiple business units to integrate their processes and streamline the management and transfer of data within the company.
Despite its widespread adoption, traditional ERP systems may not be the best digital solution for FMCG brands, as analysis from Gartner shows that 55% to 75% of all ERP projects fail to achieve their objectives. This failure can be linked to three significant challenges that ERP systems pose to FMCGs, especially brands in emerging markets:
High costs: Adopting and maintaining ERP systems can be costly, especially for large FCMG brands. In addition, data conversion and migration costs when moving to a different ERP platform can be astronomical. Research from McKinsey shows that mandatory migration to the SAP/S/4HANA platform, the new industry standard, can cost up to half a billion dollars for large organizations. FMCG brands, many of whom currently wrestle with the need to cut costs, struggle to justify this large expense.Highly complex and technical: Many traditional ERP systems are complex and require highly skilled technical staff to run and maintain. The systems also have a steep learning curve, and employees often need extensive and expensive training to utilize the software properly. Mostly limited to internal processes: Traditional ERP systems are mostly limited to improving the efficiency of internal processes, with the most common use cases aimed at streamlining processes across finance, procurement, distribution, and other departments in the same organization. However, the existing ERP systems do not digitalize external processes with other ecosystem partners, such as distributors, retailers, or sellers. For example, FMCG brands that adopt traditional ERP systems still require sales reps to visit merchants physically, take orders manually and reconcile cash payments. The dependence on manual external processes causes SG&A costs to remain high, leaving brands with vulnerable supply chains.
Integrate open commerce with ERP to drive growth
Open commerce is a digital commerce platform built on the principles of decentralized control – the same principles behind cryptocurrencies, DeFi, and other web3 technologies. Open commerce is designed to create a digital “free trade environment,” where brands, merchants, and distributors can meet and transact digitally without undue interference from centralized entities.
By integrating ERP systems with an open commerce platform, FMCG brands and distributors can increase the efficiency of internal and external processes. For example, open commerce provides brands with a direct link to every merchant across the distribution chain and collates the data generated at POS. With this data, sales and marketing leaders can see where the demand for their products is without waiting for manual reports from field sales officers. This increased efficiency can reduce SG&A costs by up to 25% – a reduction that exceeds the most optimistic cost-reduction estimates for traditional ERP systems
In addition, an open commerce platform provides all the advantages of traditional e-commerce, such as real-time transaction data, direct customer engagement, and digital payments without the ridiculously high fees and artificial barriers enforced by e-commerce platforms. Open commerce platforms enable FMCG brands to overcome the challenges posed by traditional ERP systems, as it is a fraction of the cost, easy to install and maintain, and is simple to use.
Unlock FMCG growth with the world’s first open commerce platform
RedCloud has built the world’s first open commerce platform, Red101 Market, to unlock the full value of the traditional distribution chain and drive growth. With Red101 Market, FMCG brands can directly sell to distributors and merchants and collect digital payments on a single platform.
Our open commerce platform collates real-time sales data at POS from every merchant in the market, providing brands with in-depth insights into market demand and consumption patterns. The in-built market intelligence tool analyzes this data to generate actionable insights that sales and marketing leaders can leverage to identify growth opportunities and make data-driven decisions to maximize the opportunities.
We are also eliminating cash payments across the FMCG industry by empowering brands to receive digital payments for their merchants. To do this, we built the world’s largest local payment network with over 2 million pay-in points across 100 countries. This vast payment network ensures that merchants can digitize their cash quickly and make digital payments, even without a bank account. By enabling digital payments, we also provide brands with an up-to-date digital trading record of all merchants so they can identify the top-selling merchants and offer credit facilities that they need to grow their business.
The open commerce platform easily integrates with any existing ERP system and is easy to use. Sales and marketing teams can begin generating insights and increasing sales within a short while after deployment.
Schedule a demo with us today to see how you can integrate open commerce with your existing tech solution, reduce costs by up to 25% and drive growth.