Supply Chain Blog

FMCG Drinks and disastrous extended Supply Chain overstocking

Posted by Dave Jordan on Wed, Jan 29, 2014

I don’t know why I looked this up now but I did. Do you remember the Icelandic volcano that erupted in 2010 and caused so much havoc to supply chains in and around Europe? Most people do as they were affected in some way either in professional or personal life. Outside of Iceland, I expect few people had heard of the location and even fewer could pronounce it – Eyjafjallajökull – well worth 406 points in Scrabble.

Do you know how much ash and other debris was propelled skywards from the Eyjafjallajökull volcano in the first 3 days?  The best estimate indicates a mammoth 140 million cubic metres (180,000,000 cu yards) which erupted at a rate of 75 tonnes per second – thanks Wiki. Think about it for a second or two. That is enormous. Try and picture about 100 pallets of Persil washing powder being propelled into the air every single second for some considerable time and staying airborne!

If matter cannot be created or destroyed, what replaced this? Is Iceland actually sitting on a structure that looks like a giant Malteser chocolate which may give way at any time? I think we should be told. Mastermind’s Magnus Magnusson would have told us wout a hint of a "pass".

And now to my supply chain related volcano comparison. On a much less destructive level the month, quarter, year-end sales push in FMCG, Pharma and Brewing places unwanted stock in the market which disrupts supply chains and can severely destabilise companies. Don't say it doe snot happen; you know it does. When so much unwanted stock explodes into the market place – usually the last few days of the month - this causes a number of related problems and not least, forecast accuracy collapse:

  1. The Producer may believe the demand signal is healthy and gears up for replenishment stock which locks up resources, cash and physical space.
  2. Distributor/Key Accounts cash flow and warehouses are blocked as nobody actually wants the product that is available.
  3. Supply of product consumers actually want is delayed as Producers make the wrong stuff or run out of storage space.
  4. Stock will expire and you will suffer write off.
  5. Yet, sales people get their bonuses despite causing internal chaos……..

Like my Icelandic Malteser proposition, at the period end you have thrown so much unwanted stuff into the market that nobody needs or wants and it hangs around for ages. What is left behind is uncertainty and certainly not very pleasant.

You can only get away with a “head in sand/ash”  push strategy for so long until your business is paralysed and badly damaged and this can take years from which to recover. Next time you are asked to approve a last minute loading don’t say “pass” say “no”.

 

 

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Tags: Customer service, SKU, Brewing & Beverages, FMCG, Dave Jordan, Pharma, Distribution, Inventory Management & Stock Control

FMCG: Why do Chocolate Producers struggle at Christmas & Easter?

Posted by Dave Jordan on Wed, Jan 08, 2014

Post Christmas I have been taking a look at International Key Account retailers and seeing how they are coping in the current economic squeeze. One question came to me after seeing well over 20 outlets of various retailers. What do they all do with all that chocolate and other confectionery?

Planning Chocolate Sale The same scene is present after Easter too. Shelf after shelf and gondola after gondola of seasonal chocolate in all sorts of formats, shapes and sizes. Not simple packaging either and it must cost a fortune to pack a 15cm tall ‘chokky’ Santa into a multi-coloured coffret. To be fair it is not just one manufacturer who has suffered a forecasting blip, every single major name chocolate producer appears unable to get it right. For all of them Christmas must be a peak period and one that can make or break the year end results and with no time left to remedy any sales deficit. Similarly, the timing can also place an un-provisioned hole in Q1 numbers.

Of course, nobody wants to disappoint consumers and run out of stock at those peak periods but how can they afford the apparent over-stocking? If the goods are on consignment or “sale or return" then I can perhaps understand why retailers let displays hang around for several weeks. Even then I doubt the retailers would relish wasting sales space on Easter themed chocolate into June and beyond.

Considering the power retailers have over producers I do not understand why stock is allowed to gather dust on shelves. Certainly, for many foodstuffs the listing contracts will contain clauses to withdraw stocks but usually only when the sell-by date approaches or off-take is ridiculouly low.

What is the destiny of chocolate Santas and bunny rabbits after the sell-by date arrives? You cannot do much with it, can you? You cannot send it to a sink market in another country and with the vast majority of edibles you cannot recycle the stuff into fresh production as you could with washing powder, for example. If you have to write-off stock you have to pay to have it destroyed professionally and you frequently have to pay VAT on the value as if it was a sale.

Whatever the destiny of all that yummy chocolatey goodness, it is indicative of a lack of rigour in forecast and/or sales expectations. Diverting some investment from stock that does not sell to taking a long, hard look at your Sales & Operational Planning (S&OP) process could offer a very rapid pay-back for the companies willing to break the chocolate mould.

 

 

Tags: FMCG, Christmas, Dave Jordan, Supply Chain, S&OP, Forecasting & Demand Planning