• Written by Azhar Aliyar, Director

A finance director staring at a spreadsheet of IT costs for the upcoming quarter is likely to notice a familiar pattern: a long list of expenses for reports, integrations, and system licences, with a smaller portion dedicated to the actual running of systems like ERP, the distributor management system, trade promotion tools, and demand planning. This is because IT spending in FMCG often grows by accretion, with new reports and integrations added to answer specific questions, rather than leveraging the data already held in existing systems.

Where IT money actually goes in a FMCG business

The majority of IT spending in FMCG goes towards getting answers out of systems, rather than running them. This is evident in the fact that 14.3% of US businesses used AI in sales and marketing in the previous six months, against 1.7% in production of goods and 0.9% in distribution, according to the US Census Bureau's Business Trends and Outlook Survey. This disparity suggests that IT resources are being devoted to analyzing and reporting on data, rather than optimizing core business processes.

A closer look at the IT budget of a typical FMCG company reveals that a significant portion is allocated to maintaining and updating various systems, as well as generating reports to answer specific business questions. For instance, a category manager may request a report on sales trends for a particular product, which requires IT to extract data from the ERP system, manipulate it, and present it in a usable format. This process can be time-consuming and costly, especially if it involves integrating data from multiple systems.

The report and dashboard backlog

The report and dashboard backlog is a common phenomenon in FMCG companies, where IT is constantly playing catch-up to generate reports and dashboards to answer new business questions. This can be a costly and inefficient process, as each new report requires significant resources to develop and maintain. According to the US Census Bureau's Business Trends and Outlook Survey, 11.4% of US businesses used AI in their information technology function in the previous six months, which suggests that some companies are starting to explore alternative solutions to the traditional report and dashboard approach.

By leveraging AI to answer business questions, FMCG companies can reduce the report and dashboard backlog and free up IT resources to focus on more strategic initiatives. For example, a shift supervisor can use AI to analyze data from the maintenance log and identify trends and patterns, rather than relying on IT to generate a report. This approach can also enable business users to ask more complex and nuanced questions, without requiring IT to develop custom reports.

Extending ERP, the distributor management system, trade promotion tools and demand planning

Rather than replacing existing systems like ERP, the distributor management system, trade promotion tools, and demand planning, FMCG companies can extend their functionality by leveraging AI to ask better questions of the data they already hold. This approach can help defer a replacement programme and reduce IT costs. For instance, a demand planner can use AI to analyze data from the demand planning system and identify opportunities to optimize production and inventory levels, rather than relying on manual analysis or custom reports.

By extending the functionality of existing systems, FMCG companies can also reduce the risk and disruption associated with replacing core systems. This approach can also enable business users to leverage the data and insights they already have, rather than waiting for IT to develop new reports or integrations. As noted in our previous article on AI in FMCG, this approach can help companies unlock new insights and opportunities, without requiring significant investments in new systems or infrastructure.

Integration spend

Integration spend is another area where FMCG companies can reduce IT costs by leveraging AI. Rather than building and maintaining point-to-point links between systems, AI can be used to join data at the point of the question, enabling business users to ask complex questions that span multiple systems. This approach can reduce the complexity and cost of integration, while also enabling business users to access the data and insights they need, without requiring IT to develop custom integrations.

For example, a category manager can use AI to analyze data from the ERP system, the distributor management system, and trade promotion tools, to identify opportunities to optimize pricing and promotion strategies. This approach can enable business users to ask more complex and nuanced questions, without requiring IT to develop custom integrations or reports. To learn more about how AI can help reduce integration spend, contact us to discuss your specific needs and challenges.

Where AI adds cost rather than removing it

While AI can help reduce IT costs in FMCG, it is not a panacea, and there are areas where it can add cost rather than removing it. For instance, the data work and governance required to implement AI solutions can be significant, and cannot be skipped. FMCG companies need to budget for these costs honestly, and ensure that they have the necessary resources and expertise to implement AI solutions effectively.

According to the US Census Bureau's Business Trends and Outlook Survey, 64.3% of US businesses that have adopted AI made no change of any kind to adopt it, and only 6.8% changed how they collect or manage data. This suggests that many companies may be underestimating the effort required to implement AI solutions, and may need to revisit their budgets and resource allocations. As noted in our article on executive and strategic leadership, this requires a deep understanding of the business and its operations, as well as the ability to make tough decisions about resource allocation and prioritization.

How to tell whether IT spending actually fell

To determine whether IT spending has actually fallen, FMCG companies need to measure the reduction in requests and licences, rather than relying on projections or estimates. This requires a careful analysis of the IT budget and a clear understanding of the costs associated with different systems and initiatives. By tracking the reduction in requests and licences, companies can get a clear picture of the impact of AI on IT spending, and make adjustments as needed to optimize their IT investments.

For example, a finance director can track the number of reports and dashboards requested by business users, and measure the reduction in IT resources required to develop and maintain them. This approach can provide a clear and objective measure of the impact of AI on IT spending, and help companies make informed decisions about their IT investments. According to the US Census Bureau's Business Trends and Outlook Survey, 12.4% of US manufacturers, which includes FMCG producers, reported using AI in the previous two weeks, which suggests that some companies are already starting to see the benefits of AI in reducing IT costs.

What this does not do

This approach to reducing IT costs in FMCG using AI is not a substitute for good IT governance and management. It requires a deep understanding of the business and its operations, as well as the ability to make tough decisions about resource allocation and prioritization. It is also not a silver bullet that can solve all IT cost problems, and companies need to be realistic about the benefits and limitations of AI in this context. By understanding what AI can and cannot do, FMCG companies can make informed decisions about their IT investments, and optimize their use of AI to reduce IT costs and improve business outcomes.