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- Summary
- Top Tips
- Explanation of topic
- Weaknesses Identified
- Best Practices
Summary
In the past few years the “promotional battle” between retailers in the UK has significantly intensified; resulting in both an explosion in the number of promotions and the depth of discounts...
However, in many instances retailer and manufacturer IT systems have not been improved accordingly to reflect this shift. As a result the lack of “real time” sales information, combined with poor visibility of Promotional Space at individual store level at Head Office, often results in gaps on shelves. Furthermore, current systems are not utilised as effectively as possible due to a lack of training or sufficient take-up of opportunities.
In summary, the opportunity is for retailers to both upgrade and integrate their various IT systems to gain supply chain efficiencies, improve OSA and enhance profit. IT systems are not a replacement for people or sound processes, but rather are a tool to help and support them in being more effective.
Top Tips
- Where available, use 'real time' sales information to identify and respond quickly to promotional OOS.
- Invest in training colleagues to fully utilise replenishment systems.
- Improve the accuracy of data inputted into systems to increase the liklihood of successful execution.
- Use systems to hold data information for future leanings.
- Use systems to increase visibility across functions and with external parties.
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Explanation of topic
Most retailer supply chain systems are actually made up of a number of systems which often do not “talk to each other”. A promotional forecast on one system may not automatically update the forecast in other system. The level of integration is disparate across different retailers depending on size, culture, vision and IT investment. [see Forecasting]
The nature of promotions means that it is very difficult to anticipate consumer uplift. Some store and head office systems only update once a day. Therefore any response to exceptional uplifts can take time to percolate up the supply chain. In these instances it is vital that the forecasted sales uplift is as accurate as possible.
Stores need to ensure that promotions commence with fully stocked promotional plinths, shelves and shipper units. The quantity of stock needed for this depends on space available to that product. This space varies significantly by store. Therefore it is important to ensure opening stocks are enough for this shelf fill but not too much that significantly volumes end up in the back room. In addition it is important that the promotional forecast at store level is as accurate as possible for on-going replenishment. [see Promotions Processes]
Systems will help improve OSA only as long as the people using them are proficient in their use. It is therefore vital that everyone is fully trained in their use and potential. It is also essential that all data is accurate at all times. This is particularly important in the case of “phantom stock” where the system thinks there is stock in the store when in reality there is none. In this instance the system will not re-order and it is up to store staff to correct the stockbook. [see Promotions Processes] They also need to be user friendly as there is often a large turnover of personnel. [see Communications & Collaboration]
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Weaknesses Identified
Manual errors due to the fact that systems are not integrated
As stated above a number of retailer systems do not update one another when a change is made. This then leads to the increased possibility of manual errors being made or the changes being missed altogether. For example, one system may hold the store level forecast for the promotion but another system may hold the forecast that drives the orders from suppliers. If the data in these systems is not aligned then the result could be gaps on shelves or too much stock in stores back rooms.
Another weakness of many systems is their inability to track and highlight manual amendments. For example, seasonal uplifts may already be in place for categories such as ice cream. However, it is very easy for people to manually adjust these profiles – thereby nullifying all the history and experience that has gone in to the system-based forecast. It is debatable whether forecasts should be easily amendable or not. [see Forecasting]
Inability to respond quickly to increased sales
If a store experiences significant sales uplifts it may need more stock that very day. Many store systems only update once a day and then it can take a couple more days before the store is replenished. As a result OSA can be impacted over a number of days. [see Distribution]
Lack of visibility (at Head Office) of promotional space at store level
Some retailers do not have databases that accurately outline the off-shelf space at store level. This means that promotional forecasts are often calculated in a “one size fits all” approach. This can result in a large store not receiving enough stock to fill a Gondola End whilst a small store receives far too much stock. Also, without a true picture of off-shelf space at corporate level, the marketing plan and the merchandising strategy are compromised; retailers allocate wrong shelf fills and calculate returns on promotions that are inaccurate.
Variable use of systems
As mentioned earlier, it is essential that the correct data is used to update the various systems. Often lines that are promoted also happen to be New Product Introductions. It is vital therefore that all the product information is correctly set up so that execution is “right first time”.
In addition, when the forecast is wrong the retailer may place manual orders on the supplier. This also has potential for error as well as the fact that it often difficult for manufacturers to respond quickly (links to forecasting and distribution).
The rapid turnover of people in retailers means systems training needs to be done on a regular basis. People will better use the systems if they are user-friendly.
Finally, better use of EDI technology (such as product data transfer) can lead to better data exchange and therefore fewer supply issues and faster communication.
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Best Practices
Improved systems integration & real time ability
Though initially costly this allows real time flow of data and reduces the possibility of manual error. One retailer is currently developing a system that will enable multiple orders to suppliers throughout the day. Although clearly beneficial for OSA for the retailer there has to be a trade-off with the impact on the suppler (links to Collaboration) and on the number of vehicles on the road. [see Distribution]
Improved forecasting of Promotional space at store level
Those retailers that have an accurate database of the space by store tend to see fewer issues at the start of promotions and generally have greater accuracy of forecasts throughout the promotion. To maintain this accuracy, a rigorous process for updating the off-shelf space should be set up with senior level ownership; the system could be locked and updated only through their authorisation. Moreover, the database is connected to the ordering system enabling much more accurate promotion ordering.
The important thing is that this database is actually used when the forecasts are originally calculated. A further benefit will be better alignment of marketing, buying, supply chain and stores as they all have accurate visibility of the promotional space.
Improved use of the systems available
For NPD products that are being promoted from launch a good way of ensuring “right first time” is the use of EDI product exchange. This enables the product information in the manufacturer’s systems to automatically update the product information in the retailer systems, thereby eliminating the potential for manual error. (This is currently being trialled by some retailers and suppliers. Also the use of “dummy” orders prior to the first real order to ensure all masterdata is correct.
Finally retailers and manufacturers generally see improvements when they enhance their existing systems to make them more intuitive and user-friendly.
Using the system for “Scenario planning”
One retailer developed a system used as a decision-aid tool by helping the buyers to select the best promotions. The buyer keys in information such as uplift, funding, gate fee, period. The system provides a profitability measurement taking account of cannibalisation cost, marketing cost, extra distribution cost and other cost factors based on promotion historical data (eg. Cannibalisation of Coke sales when Pepsi is promoted). The buyers can play with the system to see ways to turn a promotion to profitability, by changing mechanic, increasing price, funding, forecasted sales. Hence, this IT system offers flexibility and simulation of all the “what if” scenarios. Although some of the above does not directly influence OSA, the ability to take account of cannibalisation and the historical data are key enablers toward better forecasting and therefore ultimately improved OSA.
System algorithm performing forecasts with 90-95% accuracy
Some retailers have developed an algorithm in the system that enables the retailer to look at the first day sales of promotions and forecast with 90-95% accuracy the sales for the rest of the promotion period which follow a similar pattern. A number of suppliers are also using similar algorithms and there is a real opportunity to share this more formally.
Promotion historical database
Promotion database record the manufacturers forecast accuracy and past availability issues for each promoted line. This system enables the retailer to keep records of promotion performance and forecasting accuracy. In future it would also be beneficial for this information to be on a retailer’s webpage that can be utilised by all his suppliers, thus enabling both the retailers and suppliers to access the same historical data when calculating forecasts. [see Collaboration]
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Others promising practices
- A system measuring lost sales every hour would be very helpful in providing visibility of true demand, thereby helping to improve forecast accuracy
- Development of a system that incorporates the impact of weather on sales
- If the DC is nearly OOS of a promotion, the system will automatically share the volume between the stores.
- System sending alert or flagging OOS lines in stores, so that the distribution centre can respond quickly
Other Focus Areas:
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Forecasting |
Getting Product to Store |
On the
Shop Floor |
Distribution |
Communication
& Collaboration |
Production |
Promotions Process |
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Promotional On-Shelf Availability - Next steps:
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