If you still rely on Traditional Trade (TT) distribution for a significant part of your business then read on! Over-stocking Distributors happens by stealth and the consequences creep up on you until suddenly and without warning you hit a brick wall and sales figures fall off a cliff.
Avoiding this career-limiting disaster requires vigilance and discipline plus top-down leadership ideally through a harmonious Sales & Operational Planning (S&OP) process.
Month, quarter and year-end push. Run your business on one set of numbers agreed at Board level and ensure NOBODY (particularly Sales!) operates an alternative private agenda. If you follow a decent S&OP process such period end pushes can be avoided. Let's face it; period-end sales pushes place huge strain on everybody in the organisation yet only the Sales people receive a bonus for these efforts...........!
Failed launches. Get real with new launch innovation volume projections. Brand Managers will always, repeat always, overstate how successful their new brand/SKU is going to be. They do not want to appear unambitious, nor do they want to run out of stock but this is what happens when self-interest decisions are taken outside of a healthy S&OP process.
Old label/formulation stock. New launches should not a surprise and with decent planning you can avoid having old label/formulation stock in the Distributor warehouse. As soon as you start pumping in an SKU with a new label the Distributor will stop selling the old one. "Well that's his problem" - no it isn't as it blocks his warehouse, his cash flow and your customer service. If you plan your launch volume ramp-up well you can avoid this by simply running a sink-market region where all stocks of the old label SKU are sold out, possibly with a discount.
Old and expired promotions. If promotions have failed and do not move then take quick action and don’t let them sit gathering dust. Dismantle co-packs and put the valuable and original SKUs back into stock and/or re-label special offer packs.
Returns from customers. Producer sales forces struggle with this and particularly when it concerns Key Accounts. You need a cast iron agreement on responsibility AND authority for customer returns. If this is contractually agreed then fine, take the stock back and redirect it in your system. If there is no definite agreement then you leave the door open to individual sales people taking unilateral and comfortable decisions to accept returns to get clients off their back. Unexpected and unmanaged returns cause havoc in logistics, warehousing and in ERP's.
Producer forecasting errors. No forecast is ever 100% perfect and nor should it be, by definition. However, if you measure your forecast accuracy BY SKU and take actions to improve accuracy then this source of overstock can be significantly reduced. Ignore calls to measure accuracy by brand or by category as the data is useless to the people supplying the products.
Damaged and expired. This is really an accumulation of items 1-6. Damaged and expired products will be present in any business. To ensure they do not appear in the ERP as good stock available for sale it is important to write off and dispose of them as soon as possible.
In order to prevent re-occurrence there needs to be a change in company behaviour coupled with a living S&OP process led by the most senior person in the organisation.
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