Supply Chain Blog

FMCG distributor overstocking blocks more than your business

Posted by Dave Jordan on Tue, Jul 10, 2012

I spent most of last weekend slightly below ground in a hot, dirty, smelly hole without light and where you could not stand up properly. No, it was not the driver’s room at your 3PLP but it was the hole in the ground that provides water to the house.

No, piped municipality water has not quite reached where I rest my hat. My water is pumped up from several meters below ground and surprisingly this is currently without charge. However, I can see a helpful EU minion scribbling away at yet another ridiculous law to restrict how people live and breathe.

I had noticed that the pump was working extremely well lately. The pressure was very powerful and the car and the dog certainly benefitted from a high pressure cleanse. In fact, the morning shower was getting a little uncomfortable; very prickly actually. I should have known at the time that something was wrong and after a few hours sweating below ground it became clear that my pump had failed due to FMCG overstocking. Yes exactly, I mean Finely Milled Clogging Grains or sand as it is more widely known.

Previously above ground everything seemed to be going well. More and more water was obviously being pumped down the pipe and I had no cause for concern. Performance was good, if not improving and then without warning nothing, not even a dribble. The pump had collected so much unwanted material without me knowing that it eventually and literally ground to a halt. Suddenly, I had no water and I was not getting any cleaner crouching over my well, either.

Does this sound familiar in your FMCG business; particularly those relying on distributors for traditional trade success? Overstocking distributors is one of the easiest ways to sell more and more product when the demand is not present. If you provide sufficient incentives such as payment terms and discounts you can persuade distributor partners to overstock, i.e. loading the trade.  The gains are inevitably short term as eventually the market runs out of money and/or space and the products that people actually want cannot find their way to shop shelves.

When you load the trade you do not actually sell stock. Stock is not consumed and it sits there hidden from view until you are forced to bite the bullet and take a top and bottom line hit. CEO’s should ensure their Supply Chain and Finance colleagues provide accurate and timely data for stock held at distributors. Ideally this should be by direct IT linkage but an Excel file will suffice providing in-person checks are also carried out.

If your business appears to be motoring along and product is being pumped faster and faster into the market take a step back for a reality check before it is too late and certainly before you sign the sales bonus cheques. Switching off your Route To Market pump suddenly and without warning can get very smelly indeed.

 

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Tagss: FMCG, Route to Market, Dave Jordan, Performance Improvement, CEE, Traditional Trade, Distribution, Inventory Management & Stock Control