Supply Chain Blog

FMCG: Costs and Supply Chain Excellence

Posted by Dave Jordan on Wed, May 27, 2015

I recently had a lengthy discussion with someone from the UK Armed Forces who was preparing to lead his men into a dangerous part of the world. I enquired about the logistics of delivering people, arms, ammunition and machines to the right place at the right time. Running out of anti-dandruff shampoo may prompt you to select a white shirt in the morning but running out of bullets when under fire provides a very different challenge.

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Taking bullets as the focus. Getting bullets to the front and keeping up the supply lines must be an incredible logistical task which simply cannot fail. Just imagine, no weekends or bank holidays to allow the supply chain to catch up or regroup. All FMCG supply chain people will have all had the dubious privilege to call Metro or Asda or Tesco to say “sorry, we are out of stock on Bloggo Powder but it will be with you on Tuesday”. The supply chain in an active military deployment must be a super-slick Rolls-Royce of an organisation……..not!

Well, actually my friend rated the quality of supply chain in the military as ………. Yes, you can probably guess the short but not so sweet military technical term used. Quite simply, the military supply chain does not have to make money or deliver savings nor is it measured against customer service at the often dusty location of a fire-fight. They are tasked to get stuff from A to B and get it there they must or the consequences are potentially lethal. Consequently the military spends far more than is necessary in civilian life to achieve the similar objective of moving stuff around.

FMCG, Brewing and Pharma companies find it hard enough to forecast what domestic consumers will eat, drink and slap on their skin on a daily basis. Compare that to how many bullets are needed or what volume of diesel fuel is required or how many tank tracks are going to be ripped off. If military forecast accuracy and stock levels were the subject of KPIs then the turnover of supply chain people would be very high. So, cost in a military environment may not receive close scrutiny but in FMCG, Brewing and Pharma it certainly and rightly does.

This leads me to this thought. In the relatively mundane field of soaps and shampoos, beer and Bollinger, tablets and tonics, does cost excellence deliver performance excellence or is it the other way around……..?

 

Image courtesy of Surachai at FreeDigitalPhotos.net

 

Tags: Brewing & Beverages, FMCG, Dave Jordan, Forecasting & Demand Planning, Inventory Management & Stock Control

FMCG:Top 10 Smash Hits of Warehousing & Logistics

Posted by Dave Jordan on Wed, May 20, 2015

Hello pop pickers, here is this weeks’ top 10 smash hits in this important but often forgotten part of the FMCG Supply Chain.

FMCG_top_ten_warehousing_and_logisict_hitsAt number 10 is All Systems Go by Donna Summer – Do not cut costs on your Warehouse Management System (WMS) and avoid any untried local “specials”. Make sure all stakeholders are involved in the design specification at an early stage to avoid costly and “least worst” bolt-ons later.

Staying at number 9 is Prodigy with Out Of Space - Ensure your chosen Third Party Logistics Provider (3PLP) has sufficient space or can expand to meet your growth expectation. If your 3PLP offers you a site which is boxed in and cannot expand then walk away!

Old favourites Smokie with For A Few Dollars More lie 8th – avoid the temptation to accept the lowest 3PLP quote, however tempting. Cost is not everything and if you bite on the low quote you will probably pay for it in the long run. Evaluate 3PLP offers thoroughly including which staff they intend to deploy on your business. Also, is it really cheaper and more efficient to outsource your logistics capability?

Up And Away from the Banned of St Trinians pops up at number 7 this week – your fast moving, profit generating brands should be on the floor or lower racks to facilitate picking. Those slow moving or seasonal items (in that case why do you have ANY stock?) should be on the top row and up and out of the way.

Alliyah bringing us Age Ain’t Nothing But A Number stays at number 6 – your WMS must be capable of carrying out stock ageing analysis to prevent losses from expired products. If age analysis is not carried out you will lose sales when you realise your “stock” is not actually suitable for legal sale.

Holding steady at number 5 is Counting Every Minute from Sonia – if you want to avoid a severe financial shock at the end of the year then you must take responsibility for ensuring stock is accurately counted. In addition to statutory fiscal counting you should activate routine cycle counting to ensure your data retains accuracy. Secondly, if you see a stock mismatch early enough you may be able to rectify this before memories fade and time moves on.

Keep On Truckin’ by Eddie Kendricks sits at 4 this week – whether you chose electric powered narrow aisle or standard FLT’s do a simple check and ensure battery type are interchangeable across the fleet AND sufficient extra batteries are available to ensure 24/7 coverage. Surprisingly, idle FLT’s are a common sight when battery budgets have been cut. (They only seem to run out of power when it is busy. Right?)

Sittin’ On The Dock Of The Bay by Otis Redding begins the top 3 countdown – how many loading bays does your 3PLP have or propose for a new build? You have to get stock in at the same time as you move stock out. The almost inevitable month end bonus push from Sales will expose a simple lack of doors and bays.

Living In A Box by the delightfully titled Living in a Box is at number 2 – forgive my indulgence. I think this is a great Supply Chain themed song so it gets in!

It Takes Two Baby by ageing rockers Rod Stewart and Tina Turner leads the warehousing chart this week – do not assume your 3PLP knows enough about your business to leave him alone on a day to day basis. You need daily discussions to resolve operational issues plus monthly performance reviews at an appropriate senior level. Get yourself an office in the 3PLP premises and work hard at the relationship on a daily basis.

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Images courtesy of Stuart Miles at FreeDigitalPhotos.net and Enchange Ltd.

 

Tags: FMCG, Logistics Service Provider, Dave Jordan, WMS, Cost Reduction, Logistics Management

FMCG SKU Proliferation: How this affects your Customer Service

Posted by Dave Jordan on Wed, May 13, 2015

Complex_SKUFMCG SKUs sneak onto price lists when nobody is looking! Sales & Marketing colleagues prefer new launches to have lengthy lists of SKUs; different flavours, different sizes, different colours, different shapes. How many shelf facings do they want and how many do they really need? How do these decisions get through S&OP meetings? (Assuming you do actually run a Sales & Operational Planning process......)

Do you know how this proliferation is likely to be affecting your customer service? One thing for sure is that it is affecting the same and always negatively. Rather than delighting more and more consumers you are likely to be disappointing them and wasting countless Euros/Pounds/Dollars at the same time.

Factory complexity. Time is money in factories as they try and make their assets sweat and get as much out of the gate as fast as possible and as cheaply as possible. Each colour or perfume change or label or pack size adjustment stops the production line and steals valuable time and money.

Each individual SKU requires a dedicated pallet or rack location. The more SKUs you have the more money you are paying for space. When you have 16+ variants of the same shampoo pack size you can understand why picking errors occur, stocks become inaccurate leading to lower customer service levels.

Cost per SKU. Have you ever sat down and calculated how much it costs to have an SKU on your price list? Sales staff will bemoan the rising listing fees but in reality the cost of an SKU is much, much more. Including, for example

  • Someone has to develop the product/pack/bottle case.
  • A colleague has to find suitable suppliers.
  • An employee has to buy the different label, dyestuff, cap, box etc.
  • The new raw material/packaging has to be stored in a warehouse.
  • Someone has to call it off at the factory.
  • The factory has to make the SKU.
  • The finished product is stored in a warehouse.
  • Someone at the operating company has to supply plan the SKU.
  • Transport ex factory.
  • Storage at operating company warehouse.
  • Transport to Distributor or Retailer.

All of these activities and more ensure that the cost of having an SKU on the books is significant. In a very rough calculation the cost of having 1 SKU on your books is typically 30,000 Euros in a medium sized business.

SKU rationalisation. Ok, so you are in FMCG and drowning under SKU complexity. Far too many organisations launch a new SKU and then fail to revisit the data assumptions on which it was launched. Firstly, if a new SKU is not even planned to deliver at least 30,000 Euros profit (or whatever your in-house rule of thumb figure may be) then DON'T LAUNCH IT! For all SKUs on your price list you must carry out an SKU rationalization exercise at least annually and preferably quarterly. SKUs that do not meet profit/volume/margin criteria should be placed on watch. If they remain below your cut off points then it is time to propose a delisting.

Of course, there will always be special cases like SKUs that constitute a range or a niche regional product. As long as these are the exceptions then you have a chance of a fast flowing, efficient supply chain.

Introducing an SKU is a cross business decision, or should be! When considering new SKU introduction at your next Board or S&OP meeting then the supply chain people should be asking some very testing questions.

Need more expert advice on SKU complexity and how to define necessary complexity? Contact Dave!

Image courtesy of Gualberto107 at FreeDigitalPhotos.net

Tags: SKU, FMCG, Dave Jordan, S&OP, Inventory Management & Stock Control

7 Deadly FMCG Sins: Overstocked Traditional Trade Distributors

Posted by Dave Jordan on Wed, May 06, 2015

044951C8572581EB3FB7ABA741B0A21E066A3CEE461F88BE9Apimgpsh_fullsize_distrSorry to be a little direct right at the start but make no mistake Mr/Mrs. FMCG Producer, YOU put the stock there, oh yes you did! Distributors don't buy stock for a laugh and a giggle as they like full shelves. Excess stock blocks up their shelves and warehouses and, most critically locks up their cash. Yes, the cash you are desperately trying to collect and book in the accounts to meet your month-end commitments.

 Let us take a look at the 7 deadly sins of excess stock:

  1. Month, quarter and year-end push. "Targets have to be met so push as much stock as possible into the Distributors. Even if they have no chance or intention to sell it."
  2. Failed launches. Unrealistic Producer sales objectives leading to slow moving and eventually expiring goods. Slow movers and expired all form part of Producer stock value and Distributor sunk cash until you do something!
  3. Old label/pre-relaunch stock. Perfectly good stock but the pack with the new artwork is being sold already and nobody wants this variant. Some careful planning in advance could see older stock liquidated in a sink market or moved out through discounting.
  4. Old and expired promotions. Funding support has ended and the guys with the best cars have moved onto the next “big thing” so what do we do with all these left over promotional packs? Disassemble, discount or destroy but don’t keep lying around!
  5. Returns from customers. Still arguing about who is to pay for these returns? Was a return policy agreed in the first place?.
  6. Producer forecasting errors. Nobody wants to lose face at Producer HQ so the excess stock sits and gathers dust until the annual stock count and later expiry.
  7. Damaged and expired. Is it clear who pays for any damages and expired goods? Make a decision and either re-sell or get this stuff off the books. Inevitably, damages will happen but get them written off quickly AND destroyed and get over it. You can avoid expired goods – see all of the above!

You might think your Distributors have a healthy 21 days of cover but in reality they are operating with a much lower level of saleable stock. The rest sits in their books and in your stock cover numbers but it contributes nothing, zero to sales. In fact, it negatively affects sales as stock that is in demand and selling out is available at too low levels to meet customer requirements.

"They have so much stock but my Customer Service level is rubbish". THIS IS NOT A SUPPLY CHAIN PROBLEM ALONE!

Image courtesy of Stuart Miles at freedigitalphotos.net

Tags: FMCG, Dave Jordan, CEE, Distribution, Inventory Management & Stock Control