Supply Chain Blog

FMCG Trade Loading & 4th Quarter Challenges - deja vue all over again!

Posted by Dave Jordan on Mon, Nov 27, 2017

Some things never change and FMCG 4th Quarter challenges certainly do not. The same challenges are clearly present and what is astonishing is that some companies are still making short term, expensive efforts to “make the sales numbers”. I don't think that is very clever; instead of pouring cash into a black hole without guaranteed return why not divert resources to sort out the underlying problems? They will not go away on their own!

There is a little bit of growth in the market but those green shoots are still relatively puny. Assuming growth is to return, those companies that had the vision to be critical of how they do business in difficult times will be the winners. All the others will be achieving the numbers by loading the trade….again and again.

You should have a good feeling for how things have gone in Q3 and what is still needed in Q4 to reach the numbers you committed to over 12 months ago. "Committed" may well be the wrong word as you were probably forced/cajoled/persuaded to accept figures you knew would be difficult if not nigh impossible to achieve. However, for the greater corporate good you took it on the chin and said “yes, we will do it” (no idea how but cést la vie).

Exactly how are you going to achieve those seemingly distant numbers? The corporate world remains in trouble but so are consumers. The two groups are not disconnected; consumers are having a very tough time considering the increasingly clueless government austerity measures that continue to drip out around the globe. Consumers simply do not have the money to prop up your annual plan and what money they do have is likely to be rationed to be sure of a reasonably happy Christmas. Remember, consumers owe you nothing, not a penny!

One thing you may consider if sales are not going well is to fall into the trap of month-end loading. Let us consider this scenario which is far from uncommon even in “blue-chip” companies. Let us assume October sales are poor in the first 2 weeks and then the word is given to “push” stocks into the trade. Discounts are given, favours called in and hey presto, the required target number is achieved and you and your bosses think you are back on tSupply_chain_sales_planning_results.jpgrack.

You have pushed so much stock into the trade that distributors are short of cash and International Key Accounts platforms are overstocked. Consumers do not drink more beer or wash their hair more often or eat extra snacks because you sold at a discount. They have taken advantage of your offers and have filled their own domestic warehouses ready for Christmas and possibly beyond.

Then we get to November. This time sales are poor into the third week and the rallying call of the stock push does not seem to be working. Support  and discretionary spend budgets are raided again and yet more stock is forced into places where it has no demand. Despite this, the motivation of achieving targets and securing a bonus ensure that the right number is flashed to HQ at the end of the month.

Now just December to get through……even if it is really only a 16/17 day month for selling. You are so close that a few more discounts and the promotion of high value SKUs means you close the year on target. It’s that champagne moment, get the fat cigars out!!!!

Sit down and think about what you have just done for the sake of a slap on the back and a bonus. You have turned the operation of the company upside down, contravened numerous policies, abused S&OP (if you use it) and unfairly stretched your staff in all departments. 

If you are brutally honest you will know you have sold January’s demand over the last quarter the year. You will not get away with that for long as it will come back to bite you eventually!

With stretched resources it is difficult for companies to see what is really happening across all departments and how decisions in one area cause a detrimental effect in another. If you insist on chasing the full year numbers/bonus then you might at least take on some professional support and understand the damage you are causing to yourself.

Image courtesy of Stuart Miles at freedigitalphotos.net

 

Tagss: FMCG, Dave Jordan, CEO, Performance Improvement, S&OP, Forecasting & Demand Planning, Sales, Distribution, Integrated Business Planning