Christmas seasons create opportunities for fast-moving-consumer-goods (FMCG) firms to test their organizations and system capabilities in serving the needs of customers and their products’ final consumers. Dealing with peak season requires a prepared and optimized supply chain.
According to Deloitte, retail sales this holiday season is less robust than in recent years with just 1% and 1.5% growth rate, amounting to between $1.147 trillion and $1.152 trillion during the November-to-January time frame.
In the Philippines, 52% of Filipinos are planning to spend less by 31% compared to last year, costing the retail industry by P95 billion in projected reduced sales, according to a survey from global financial comparison website Finder.com.
Despite a tightening budget for most consumers due to Covid-19 economic impact, sales during holidays are typically higher than any given periods. With the increasing appetite of consumers on e-commerce shopping, companies must establish a well-planned supply chain infrastructure to deal with complexities associated with taking orders, inventory level, warehousing, distribution, and last-mile delivery.
Firms are maximizing sales during Christmas to beat the annual revenue goals. Thus, the dreaded news of shelves being empty before the holiday rush keep FMCG executives wondering what could be further improved in their company’s integrated processes.
The phenomenon of high seasonal demand scratches the surface of supply chain challenges facing firms today. Other issues include low order-fill rates, high inventories, lack or excessive production capacity, and not enough delivery trucks. It’s enough to keep any executive awake at night.
It is therefore apt to review the basic principles that govern an efficient and effective supply chain, keeping in mind that as these principles may be basic in form, they can spell the difference in the win-lose competitive business arena.
Planning demand continues to be a major improvement area and key challenge for most firms. What products and how much quantity will be sold in the future determines how much materials should be bought, what level of production capacity should be reserved, and how much finished good should be kept. The demand plan drives all the other company plans which require significant financial investment. Demand Planning has 3 sub-processes which are:
- Demand forecasting involves what a firm believes what and how much products consumer will buy. Some indicators of what consumers will buy are: historical shipments, competitors’ activities, and consumer behaviour. The demand forecast numbers consist of external data from customers and trading partners.
- Demand management utilizes price, promotions, and other activities to entice consumer buying. This is an internal activity and would normally require some investment to shift the forecast numbers.
- Demand communication happens during the execution phase and is a key input in anticipating demand. Some market assumptions may not happen and thus demand numbers may need to change. How fast firms can communicate data from the market place will determine how responsive key decision makers will be in operational execution.
Directionally, the more variable the historical demand for a product, the higher the inventory level should be. Products which have demonstrated a more stable demand pattern would require lower inventories. During peak seasons, inventory levels are temporarily increased for obvious reasons.
Supply chain responsiveness
Since arbitrary changes in inventories has proven to be an ineffective approach to meeting working capital or customer service standards, best-in-class firms have resorted to streamlining their supply chains to better respond to changing demand.
How raw material vendors respond to short-notice orders and how well manufacturing and logistics accommodate to abrupt demand swings will determine the firm’s flexibility to serve its customers. This is a very challenging area as first-tier vendors and customers may need to be enrolled to the responsive initiative.
Manufacturing agility and reliability
Part of any supply chain’s core is how fast and how flexible firms are in converting materials and resources to a mix of quantities of unique finished products. Many firms adopt buzz-word concepts such as Lean, Six Sigma, and Just-in-Time without realizing the hard work needed to implement these ideas.
Agility and Reliability are not concepts but measurable standards that allow a firm to define how responsive it wants to be in terms of making available products into the supply chain stream. There is no real specific answer to what constitutes what is world-class agile or reliable. It depends on the industry and the firm’s strategy. Commodity firms would probably stress reliability (in terms of yield) while toy- or furniture-makers would likely invest in agility.
Logistics provider capabilities
Logistics and transport providers just don’t relate well with swings in demand. Any third party logistics provider (3PL) has only so much storage and transport capability for each of its clients. Outsourcing to a 3PL is not an option to delegate logistics and then forgetting about it. Firms need to understand 3PL’s are partners and that means both need to realize the responsibilities of joint planning and communication.
Many firms, FMCG or otherwise, consider the Christmas season as the bellwether of their companies’ performance over an entire year. The principles narrated above would prove a good guide for managers aiming to sustain their firms’ competitive advantage.
Jovy Jader is a Managing Director and a Supply Chain Management Consultant at Prosults Consulting LLP. Email at email@example.com.