Supply Chain Blog

FMCG Inventory: Do you celebrate being Out Of Stock - OOS)?

Posted by Dave Jordan on Wed, Feb 17, 2016

Out of stocks? Excellent news and a huge relief for all concerned!

A celebration party or at least a few drinks should be the next immediate priority but only after a bath or shower……….. Being sentenced to serve time in the stocks in medieval times was a very public humiliation but certainly low cost and effective for the public purse. Stocks were popular across the world and their official use did not die out until the early 1900’s. If only they were available today.

Those found guilty of crimes would be locked in that one uncomfortable, immobile position for days or weeks in all weathers. Then came the fun part as the general public took great delight in throwing as much mouldy and rotten “stuff” at the incumbents. Anything was fair game to be thrown at or poured over these local miscreants. Honestly, anything!

Those who commit crimes today and benefit from soft Community Service Orders or holidays in Africa might think again if they were sentenced to sit in wooden stocks in the town opposite the pub they misbehaved in or shops from which they stole. In fact, if the stocks were placed next to waste recycling skips outside a fast food outlet you could make a thoroughly entertaining day out of it. “Hey kids, should we go to the beach or have a “muck-burger” and throw rubbish at the prisoners?” My yellow Marigold’s would be snapped on in seconds.

In FMCG companies, being out of stocks (OOS) generates quite opposite emotions. No celebrations or relief, just the knowledge that a valuable consumer probably walked away with a competitor product. Consider the infrastructure you have employed and paid for to place your product in front of the consumer face and your dismay should be weigh heavily.

FMCG_INVENTORY_SOP_COSTS_WORKING_CAPITAL.jpgIn all retail sectors there are multiple alternative purchase options. If you want a chocolate snack then you want it now. If you want a beer or wine with dinner you are not going to wait until you return home. If you have a headache you are not going endure the pain until your regular paracetamol is available. Consumers make purchase decisions in real time and you do not receive a second chance of securing their cash.

There are many causes of OOS including pure human error or simple transport challenges but regular OOS in your business demand a thorough backwards AND forwards review and assessment:

Forecast Accuracy & Bias – this is of course valuable data if calculated by SKU and with information available quickly to facilitate corrective actions. Only hearing about poor accuracy or persistent inaccuracy several weeks after it happened is a complete waste of time and energy.

Sales & Operational Planning (S&OP) – is your process robust and taking innovation and demand from all channels into account? Do you all operate to one set of numbers or are different departments chasing different targets? Do you have a future stock modelling element within the standard processes?

Route To Market (RTM) – whether this is for Traditional Trade (TT) or Key Accounts (KA); is your deployment efficient and fit for purpose. When did you last assess the relevance of your network? Are you holding the correct level of stock to satisfy the demand including seasonal variations?

All these elements and many more affect your ability to minimise OOS and maximise sales and all require a concerted team effort to continually drive out stock holding errors and drive up perfrormance. Your working capital performance is a pot of gold waiting for you.

I leave you with a motivational thought and image. What if those responsible for repetitive OOS were placed in wooden stocks for a few hours in the factory canteen area? Pass me those Marigolds!

Image courtesy of radnatt at freedigitalphotos.net

Tags: FMCG, Performance Improvement, S&OP, Inventory Management & Stock Control

Inventory, inventory, inventory. They’ve all got it – inventory.

Posted by Dave Jordan on Wed, Feb 10, 2016

Amongst the many variables in running a Supply Chain, the one certainty in FMCG, Pharmaceutical and Agri businesses is that inventory is solely in the eye of the beholder. Nobody else but Supply Chain actually sees the full unedited and excuse-free realism on inventory and what this stock is doing (always a negative effect) to overall company costs and service.

I hear lots of Management Accountant types shouting that they know what is going on better than anybody. Complete tosh. They certainly should and do know the total value and the weeks or months cover but that does not begin to tell the full story. Knowing your working capital is below, on or above target is a necessary piece of data for reporting requirements but what information and more importantly, what actions might be prudent and productive?

The Sales & Marketing guys know everything about inventory levels, not! They know and react when something is out of stock but do not care about the underlying causes as it is usually their own woeful forecasting and lack of innovation delivery rigour. Their view of inventory is commonly restricted to what happened to upset the monthly numbers rather than what is possible with some forward looking collaboration and understanding.

Is anyone actually checking what is out of stock or overstocked, what this means now and more importantly, what this means for the future? The future for sales certainly but also the future for demand planning, supply planning and production facilities. One thing is certain, when you do not have full visibility and modelling capability of your inventory chain then you will have too much and what you do have will not be aligned to market demand.

FMCG_INVENTORY_STOCKS_SUPPLYVUE.jpgWithout close attention to such detail you will find inventory follows the JIC or “just in case” principle. Stocks slowly creep up along the chain as non-analytically derived contingency appears. Sooner or later you end up with more stock than Marco Pierre White can shake a cinnamon stick at.

Inevitably, this excess is not helpful and actually hinders the capability to supply the demand. A continuous check and challenge of inventory levels along the chain (including seasonal trends) is required to ensure the correct stock is being held for different SKUs. Not brands or categories or ranges but the individual SKUs shoppers actually want to buy now; not tomorrow or next week.

A majority of the commonly used IT tools do not actually permit meaningful analysis of future possibilities. They can certainly tell you what has taken place in terms of forecast accuracy, bias, inventory level and associated value, out of stocks, service levels etc, etc but they are not designed to help you model future possibilities.

Ok, so what can you do? You can get your best spreadsheet people and throw reams of data at them but that will be wasteful and futile. What you could do is look at a specific tool for modelling your future possibilities, eg see an example here.

If you have applied each and every Supply Chain improvement initiative you can find and still need cost savings to satisfy HQ and shareholders then inventory modelling is where significant benefits to cost and service remain unexploited.

Image courtesy of Sira Anamwong at freedigitalphotos.net

 

Tags: FMCG, Forecasting & Demand Planning, Inventory Management & Stock Control, Supply Chain Analytics