Is Manufacturing Next for CPG Digital Transformations?
Most CPGs' digital transformation began on the business side, with supply chain optimization, demand planning, and streamlining trade. Now, digitalization is happening in manufacturing, where processing and packaging primed for digital leaps forward.
As frequently as the term “digitalization” is trotted out these days, it’s a notoriously difficult concept for brands and CPGs to get their arms around. Some of that’s due to the volume of disparate strategies, tactics, and technologies the term seeks to contain. That’s why, when Packaging World asked its brand and CPG audience to complete a survey* (methodology at bottom of page) on their digital transformation journeys, we wanted to level-set immediately and ensure all respondents were using the same language.
Following standard terminology lightly adapted for CPG, we define digitalization as the use of specific digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business. Digital transformation, then, is the process of integrating those specific digital technologies into some or all aspects of a business, often fundamentally changing how it operates and delivers value to customers. It involves using digital tools to streamline processes, gather data, enhance customer experiences, and adapt to market demands.
Survey respondents were overwhelming on board with those two definitions at the outset. What follows in text and graphics reflects the 89% of all survey respondents who told us upfront that they have a general understanding of digitalization and digital transformation as topics. Answers from the 11% of respondents who said they didn’t quite get the concept are omitted.
Digital transformation strategies are the exception, not the rule
While respondents understood the concept, only a quarter of them reported that their companies had a formalized digitalization strategy. About a third (35%) of respondents didn’t know whether their companies had one, and 40% know that their companies do not have a digitalization strategy.
Among respondents, those from the largest multinational brand owners all seem to be focused on enterprise-wide digital transformation—at their headquarters, at least. A common sentiment, as distilled in this comment from a major spirits brand owner in the U.S., is that “our corporate office has a digitalization strategy for the company, but they have not been rolled out yet to the manufacturing sites.”
Tim Brown, principal of packaging consultancy PTIS says that this stands to reason, and tracks with his experience with brand owner clients. “Most brand owners don’t have a litany of IT people focused on the manufacturing side, focused on digitizing their manufacturing infrastructure. There are aspects of CPGs’ general businesses where they have made digital transformation progress, like in ERP systems. But there are more hurdles in manufacturing, and those parts of the business often just aren’t as far along,” says Brown.
“Within manufacturing, brand owners are typically furthest along on the processing side, versus the packaging side,” he adds. “The assets and processes used to make the product typically are ahead of the game in this area, versus the packaging side of their business. The majority of the assets, the capital, is tied up in processing, not packaging. It can be seven to one, even 10 to one in certain companies.”
Meanwhile, when it comes to food, beverage, and pharma, brands are required to be able to track and trace processes down to batch lot levels to be recall-ready. There’s a lot of incentive to place early digital transformation emphasis upstream of packaging, in processing operations within manufacturing sites.
Consider Starbucks. It’s a major retail operation, but also a major coffee roaster and packager. The company is fully digitized around retail, fine-tuned in fact. But the manufacturing [roasting, processing, packaging] side lags retail operations in digitalization. Brown also cited contract manufacturing—less so contract packaging, but along the same lines—as likely having sophisticated digital strategies, compared to brands and CPGs. Their business tends to be more complex, with more varied SKUs and more varied tech stacks as specified by customers.
“I hope we bring forward the same focus on digitalization in manufacturing that we have in the customer/consumer side,” one brand owner respondent replied in the survey.
When focusing on manufacturing, though, survey responses support Brown’s assessment of processing being ahead of packaging operations when it comes to digitalization. A total of 61% of respondents say that manufacturing (processing) will incur the most change at the hands of digitalization. Packaging, sales & marketing, and supply chains trail processing at 27%, 25%, and 24% of respondents reporting, respectively, with no other operation breaking the 20% mark of responses.
“Whether processing or packaging, manufacturing is where most of a brand owners’ capital is located. That’s where the workforce is, and that’s where equipment assets are,” Brown says. After some of the low-hanging fruit on the business side, with ERP, demand planning, and supply chain planning, “I would expect to see manufacturing as high on the list of elements to digitally transform, to make it better and more efficient.”
Where digitalization is making landfall
We asked the 25% of respondents who say their companies have a digital transformation plan, ‘what are your plans’ goals?’ Answers varied, but ‘enhanced flexibility’ was a common sentiment, as were ‘incorporating AI,’ and a desire to ‘streamline information flow and reduce human error.’ But the most common answers revolved around data gathering (first), and data management (second).
The same sentiments resonated when all respondents were asked what types of operations and activities will be impacted by digital transformation in the coming year.
Data and analytics constituted the runaway favorite among all single-selection answers, with 61% expecting digitalization to impact their data and analytics practices in the coming year.
“Everyone’s trying to get as much data as they can, and clean data, but then what do you do with it? How do make decisions with it? How do you prioritize with it?” mused one brand owner respondent.
Taken together, machine learning and AI were cited as top areas of impact among 71% of respondents, though these are slightly different concepts. Artificial intelligence can apply across an enterprise, where machine learning can be said to be at the manufacturing level, on equipment.
“That’s going to evolve over time, as people begin to replace equipment. That can take time, since it can take 15 to 20 years before people want to replace equipment,” Brown says. But speaking of time, he adds, “I’ve been seeing more brands combine AI with digital twins to compress time to market on innovation, like new product and packaging launches. This minimizes the length of time it takes to do design and testing, both in how a package will perform in retail and among consumers, and how it will perform on existing equipment, without actually having to change out the packaging equipment.”
A brand might also shorten its risk exposure by simulating validation and testing. A CPG might devote a lot of resources to a package or product, but if the package fails in a physical ship test, then the brand has to go back to the drawing board. There’s risk in innovation and new products. By simulating that ship test with AI and digital twins, headaches can be avoided.
According to respondents, this also seems to be a way to clear the hurdle of brands waiting for upgrades to their equipment installed base, thus not being able to take advantage of on-board AI.
In any case, both AI and machines that use AI to learn, adapt, and make decisions, needs data—clean data—from which to learn and begin to make decisions. Careful data collection at the manufacturing level, via sensors that may be onboard equipment, or may be added retroactively, and careful warehousing of that data into, for instance, a small language model or retrieval-augmented generation (RAG).
Cybersecurity was cited by 31% of respondents, and closely related remote access was mentioned by 28%.
“Cybersecurity is a big deal,” Brown says. “It always seems to be a big hurdle within companies to enable somebody from the outside to get in, access the machinery, and assess the line. Brand owners just face a lot of hurdles there, which slows down digital transformation for brands on the manufacturing side.”
Brown and several respondents noted the cyclical nature of when digital transformation would be prioritized among different business sectors. Recently, there have been significant pressures, such as inflation and small margins, that have kept digital transformation focus on supply chain planning, ERP, demand planning, and similar ways to digitally streamline business segments. There hasn’t been as much focus on packaging innovation, or manufacturing innovation.
“There are cycles to all of this, and these numbers will probably look very different in about two years, as brands begin to digitally transform manufacturing and packaging R&D, now that other elements of their business have been digitalized,” Brown says.
Catch 22s among digitalization’s drivers and hurdles
Costs and labor are two major drivers of digital transformation. Counterintuitively, those factors are also hurdles that prevent brands from digitally transforming.
Digital automation stands to improve repeatability, accuracy, and precision in manufacturing and packaging, thus reducing human error significantly. This was the single most cited driver of digital transformation, with 45% of respondents choosing this option.
“Digitization reduces human error, improves efficiency and reliability, and provides meaningful data,” one large food brand respondent wrote in.
But if an existing labor force doesn’t have the skill, training, or capability to operate in a digitalized environment, then 27% of respondents see that skills gap as a hurdle to adopting digital manufacturing and packaging.
It’s easier said than done, but the answer here is in a digital platform’s simplicity and ease-of-use, such that digitalization makes operator, technician, and maintenance worker lives easier, rather than harder. Also, brands have to be careful to employ digital strategies aren’t so onerous on training as to be more trouble than they’re worth. It’s a matter of knowing your own, unique workforce.
Similarly, differing views on potential return on investment in digital transformation place the cost variable as both a commonly cited driver (33% see it as a driver, the second most commonly cited), and as a major hurdle (44% see digital transformation price tags as hurdles). As one respondent put it, digitalization “will be helpful but costly to get started before benefits are realized,” indicating that digital transformation needs a champion or ROI explainer within an organization.
“The concept of digital transformation is so broad that it takes someone who can articulate to decision makers how different elements of it can help the business,” Tim Brown says. “Let’s pick on manufacturing—what does it mean for manufacturing? What’s the business benefit of it? You need someone who’s able to articulate that and demonstrate a real ROI.”
Related, 13% or respondents cite a lack of an internal company champion to lead a company through digital transformation. More generally, a third of respondents (32%) indeed report finding it very hard to prioritize where to implement digitalization, reinforcing Brown’s assertions. The sheer volume of different platforms and strategies can cause what could be termed ‘analysis paralysis,’ and hinder adoption of digital improvement strategies.
Regarding prioritization, Heather Roberts, owner of personal care and bath brand Mom Bomb, uses a rule of thumb that works for her brand, where “whatever is causing me the biggest problem is getting digitized first. I want my digital tools to create the most impact for the smallest amount of input, and that sweet spot changes by the day, according to the day-to-day needs of the business.”
Also, with digitalization, we’re usually talking about software, and that’s a constantly changing landscape.
“You have to understand what’s the long-term implication of going down a particular path, and not another one,” Brown adds. “If you commit to a certain software as a service or platform, and another better one comes out, are you back to square one? It’s really hard, you need someone who understands that,” Brown says.
Sustainability in data
When we asked, “How do you see the onset of digitalization impacting packaging operations at your company, if at all over the coming year, and why do you predict this to be the case?” an unexpected answer emerged among several respondents.
With Extended Producer Responsibility (EPR) laws rolling out in different locales nationally and globally, there’s an increased onus on brands to closely track—and in fact report on—packaging material usage. Eco-modulation within this legislation seeks to provide carrots and sticks, rewards and penalties for using certain types of packaging material. As a result, much like track and trace to food and beverage, or serialization for pharma, digitalization of packaging material contents is on the horizon. The concept of digital product passports, for example, have been in various stages of testing in Europe.
It might not immediately be in the cards for the U.S. nationally, but many brands have to think nationally and internationally, not regionally. Whether it’s in service of EPR laws, or in view of their own, self-imposed sustainability commitments to organizations like Ellen MacArthur, that means brands are digitalizing to help with “tracking recycled and recyclable materials,” one brand owner said. “Digitalization can support your sustainability goals by optimizing resource use and reducing waste,” another brand owner said.
Consumer connection
Most consumer packaged goods sit on a retail shelf, and any consumer intel that can be gleaned from how consumers interact with it accrues to the retailer, not the brand owner. But the onset of smart packaging, by way of on-pack QR codes, gives brand owners a direct line to their consumers in ways they hadn’t had before. Standards around a 2D barcode, GS1’s digital link, will offer brands lots of options. Most of one respondent company’s digitalization practices in 2025 will be “primarily in QR enabled traceability and Sunrise 2027 [a title for adoption of 2D barcodes],” the brand owner respondent said.
Roberts agrees. “I have a product that sits on the shelf, so if I don’t know the demographics of the people who are buying my product on the shelf, I can’t track them. I needed to find a way to digitally capture that information. I created a QR code with an offer that’s on all of my packaging. There’s probably about a 2% response rate to that. People who respond give me their email address, and then I’m able to get capture some information about them. They already have a proclivity to buy my products, so I’m able to monetize them even more over time.” PW
* METHODOLOGY
The inaugural Annual Outlook Report on Digitalization reflects 96 unique survey responses collected from brand owner, CPG, and FMCG Packaging World readers. This online survey was deployed via email, and all responses were recorded between July and September 2024. The 10-question survey was devised and pressure-tested with CPG experts.
Hiring remains a major challenge in packaging, with 78% struggling to fill unskilled roles and 84% lacking experienced workers. As automation grows, companies must rethink hiring and training. Download the full report for key insights.
Looking for CPG-focused digital transformation solutions? Download our editor-curated list from PACK EXPO featuring top companies offering warehouse management, ERP, digital twin, and MES software with supply chain visibility and analytics capabilities—all tailored specifically for CPG operations.
