Supply Chain Blog

Frock Stocks & FMCG Supply Chain Inventory Decisions

Posted by Dave Jordan on Thu, Aug 04, 2016

Senior Management has been on quite a shopping spree over the last few months taking advantage of various big name high street stores that have lost their lustre and even their premises in some cases. The demise of these familiar UK brands has nothing to do with Brexit and the variable value of Sterling but in one case a run on the Green pound has been responsible…..

Of course this has had several knock-on effects and not least the amount of money “invested” in clothes and shoes is now significant and that money is largely sunk - the market for unwanted or out of style apparel being extremely limited. I hate to think how much money is hanging in the wardrobe but that raises a second issue.

The trusty old Grink pine wardrobe from IKEA has reached capacity. As a result, the small Allen Keys have been out causing blistered fingers in order to erect another Grink plus a wall mounted Plop shoe tidy. Another investment to store items that are not in regular use. In fact, if you consider that the vast majority of clothes and shoes are seasonal, at any one time most of the space is taken with things you would not dream of wearing. Fake leather Boots in August? A floral summer dress in December? (NB Northern hemisphere before someone comments!) A Superwoman onesie at any time!

FMCG_INVENTORY_STOCK_SERVICE_CONTROL.jpgWith so many clothes squeezed into the now two Grinks they are so full that finding anything in a reasonable time is difficult. Senior Management might well be correct that there is a perfect dress in there for a particular special event but can you find it? Sooner or later all recollection of what is in the wardrobes has been lost as the memory grey matter section diminishes.

Worse still, fashion trends do not stand still so what was a “must have” last year may be considered an insult to the designer where they to be worn the following season, luvvie!  

So, what have we got and what have many, many FMCG and pharmaceutical companies?

High working capital – all that money tied up on stock that may not be useful.

High storage costs –  you will be paying too much for storage whether you manage logistics internally or outsource to a 3/4PLP. (Don’t expect them to reveal that you are storing too much!)

FIFO - stock age is not monitored and write offs persist. Old stock is not liquidated before expensively assembled relaunches hit the shelves. You do not actually know what is there contributing to ongoing working capital.

High stock shrinkage – loss and damage have a higher incidence when stock is not correctly monitored and inventory levels are kept high – harder to miss.

Stock accuracy - cycle and annual stock counts are difficult to execute and usually provide unwanted shocks at reporting period ends.

Efficiency -  when warehouse capacity utilisation above 80%, operational efficiency stalls and soon plummets. Picking becomes a hazard and the warehouse simply does not have sufficient doors to move goods in and out.

When supply chain processes are inefficient and specifically inventory build decisions are not fully assessed and evaluated, you inevitably overstock as planners do not know what else they should do to protect sales and customer service. Conversely, when this happens you actually lose sales and offer poor customer service.

Does this provide the basis for a profitably growing business? Of course not but so many companies remain oblivious to the processes applied and decisions that are taken that bulk-out the supply chain.

Image courtesy of photostock at freedigitalphotos.net

Tagss: Customer service, FMCG, Pharma, Inventory Management & Stock Control, Supply Chain Analytics