The  Fast Moving Consumer Goods (FMCG) supply chain is the fundamental  structure of retailing without which no retailer can successfully operate.

Its main elements are:

Management Information

Sales Forecasting

Inventory Management

Customer Service Targeting and Monitoring

Depotsiting, Function And efficiencies

Resource Simulation

Logistics Management

In this article, each of these subjects will be covered separately although they are inter-dependent upon one another. For the supply chain to operate effectively all elements must be present and must operate as reasonably efficient level.

Management Information:                                                                                           

An obvious subject you might think, but if you spend some time, say a Day, observing information needs of middle/junior level manager in a company you would perhaps make two startling observations. The first would be that this person is surrounded by unnoticed opportunities to improve costs or service, or both. The second would be that his/her information service is:

Too Late

In the Wrong Format

Too detailed

Missing Key data

Many of reasons for installing any information system were probably valid for the justification made at the time of the first development of the perchage proposal. However, experience demonstrates that very few justifications paid any attention to the fundamentals of Decision Support Information, or the requirement to model strategic or tactical management situation, concentrating in the main on the respective departmental historical data flows and the operational elements of computing transactions.

Very often no "Key Objectives" are defined for the information system to be installed and yet, it must be the primary aim of every management to determine what is to be achieved.

To define the Key Objective, management information system requires a detailed examination of the Entrails of the business with a view to establishing:

1.The cost sensitiveness of each product cost element, whether they are

   production or service oriented.

 

2.The external influences that can upset the operational projections.

 

3.The change to operations, or management style or marketing philosophy,

   which will effect the manner in which the company perform.

 

4.The known competitive activity, which will or can influence the

   performance of the company.

 

5. The specific areas where the efficiencies or equipment, machinery

    or labour are critical to the optimum performance of the company.

Once the aforesaid elements are identified and documented, and their respective influences established, the database from which the management information will be extracted, computed and massaged, can be defined, and therefore the key objectives of the management information system are defined.

The key objectives should enable the information to be presented in such a manner that the effects of changes in the elements, which materially effect the performance of the company, can be identified and modeled.

The majority of information is presented in mountains of paper, and is difficult to extract, combine and in some circumstances hard to understand.

It is imperative that the information is presented in a manner, which reduces the necessity to allocate time to assimilate information. The best forms of achieving this objective are:

1.Graphically

 

2.Setting of standards, which when varied by the predetermined

   percentage will trigger of a report highlighting the lack of performance or

   over performance.

The data extraction process must be able to be applied to all elements of the management database, which reflects the changes in the operational effectiveness of company. The major considerations are:

1. The information must be presented in a format, which facilitates the

    identification of problems.

 

2. The control point of the supply chain must be evaluated and exception

    standards developed.

 

3. The database must allow the inclusion of all the requires data elements.

 

4. The data must be readily available.

 

5. The data and the consequent reports must be generated at the

    instance  of occurrence of problem to allow management find a solution

    to problem or event within reasonable time.

 

Sales Forecasting:                                                                                                         

Sales forecasting is a much abused and discredited phrase which owes its problems to a genuine case of semantic confusion.

A forecast, to quote the oxford English dictionary, is a conjecture beforehand, or a prediction.

A sales forecast is a very important element in supply chain management. It observes careful engineering if it is to do the job of driving all the volume calculations within the inventory management arena.

The major elements that will be addressed here are:

1.Involvement

2.Method

3.Responsibility

4.Impact of Wrong Result

5.Creating the Right Image

 It is normal for the sales people and their immediate superiors to set the annual or revised forecasts.

As they have to justify their product promotional expenditure and their existence, naturally, they are going to be bullish in their approach to the problem, and unfortunately, not very scientific in their methodology. Common practice is to add a fixed percentage to the previous years performance to justify the departmental and the area coverage explanation plans and then to create an incentive plan for the sales staff to meet the targets.

When the sales targets are not met, the cries of "Lets have a promotion on the brands to performing" can be heard in the sales department. The impact that the promotion can have no relation to supply chain management is addressed further on.

It is grossly unfair for any level of senior management to expect the sales department to justify their existence by the creation of the very budget which drives the whole company and them to perform.

The ideal involvement must be the whole company and if that appears impractical, let us examine the areas directly attributable to the sales forecast:

1.Raw material supply

2.Production Planning

3.Labour Resourcing

4.Production

5.Inventory Levels

6.Warehousing, size, number and locations

7.Trunking and delivery fleet

8.Customer Service

They form a total company, with the exception of administration departments, so ideally the total company involved. However, this creates a cumbersome apparatus to perform such a fundamental function of any business and therefore, there has to be a practical approach to the problem.

For a long time there has been a growing belief that the importance of the forecast function, whether that be annual, or the weekly revised forecast, is such that it should be taken away, from the proprietary self interests of any department and placed into a function with a cuts across all company politics. This department should either be a part of the logistic department or the centralized inventory management department. The talents of the whole company can then be drawn upon to provide inputs to the forecast.

Let us examine the methods applicable to creating sales forecast. By highlighting some of the cases where it is incorrectly created, this will serve to identify the correct minor and environment for the creation of the sales forecast.

A major departmental store's retailers have  fallen dawn badly for many years on its order fulfillments rate, never meeting more than 85% of its actual demand and yet never including the unfilled elements of each order in its actual revenue achievement analysis in formula terms that is:

Achieved sales by brand + lost sales or order not met by brand = Total demand

The sum of that formula should form the basis for the future sales projections. If not recorded, understood and utilized, the market demand will never be met, however, valiantly the company employees perform and, however much the marketing people justify market penetration. 

One of the fundamental principles, which should be applied to sales forecasting method, is that of the  Normalization of data. There are companies that attempt to prepare sales forecasts without analyzing the previous periods' performance and extract all external influences in that performance, which have no relevance to the operations of normal products sales activity.

It is imperative that the sales forecast is made bearing in mind the individual brand's sales performance, week by week, and the influences that assisted in achieving their previous sales performances.

Competitive activity is the single most-influencing elements in the creation of a sales forecast. Ignoring it can be the most damaging factor to the cause of the non-Performance of any product or company sales target.

Any information relevant to competitive activity must be collected and made readily available for use in the making of sales forecasts. Understand the activities of your competition. Remember, competitors' activity is not always detrimental, as their advertising and promotional activity can heighten the awareness about the market sector to the consumer, creating organic growth and hereby a larger market.

If the forecast is wrong, the results are well known and can effectively destroy any management strategies, which are aimed at increasing profits or market share and therefore, maintaining the achieved market share. The following are a number of the consequences of poor sales forecasting:

Under - Performance Against Forecast:                                                                   

1.Creation of marginal performance brands/products

2.Excess capital tied up in stock

3.Under utilized fleet of vehicles

4.Over utilized warehouse space

 Over Performance Against Forecast:

1.A lower order fulfillment rate

2.Unsatisfied customer

3.Customers' move to the competition

4.Extra resources have to be hired, e.g. delivery vehicles, labour

5.Fire fighting instead of planned situation management

6.Under utilization of warehouse space

The effects vary from company to company, but they do not alter the fact that the business is not being run by the management but more by the circumstances. It is vital that the right image is created by the company sales forecast.

If the planning is correct and seen to be sufficiently analytical and to have considered all the known exigencies, the fact that it was later proven to be incorrect is not so damaging to the companies image, as there will be circumstances which arise beyond any companies comprehension or control and, which will have a detrimental or complimented effect on the sales performance of the company. The trick is to try and outguess the future.

Inventory Management:                                                                                               

Inventory management covers a wide range of ways in which to maximize borrowings, strangle cash flaw, create new warehouses and yet still not get the goods to the customer all in one go and within specified lead times. It is probably the most complex technical area to get nearly right (within the supply chain) and also an area where there is a severe shortage of skills.

The major variables within inventory management are:

1.Source of supply

2.Frequency of delivery

3.Delivery constraints

4.Working capital availability

5.Demand Projections

6.Storage Facility size and locations

7.Fleet Mix and Capacity

It is, therefore, of little wonder that many companies struggle to achieve any form of optimization their inventory levels, and alone arrange them and, without the benefit of quality computer technique inventory management becomes a nightmare.

Further compounding influences on the efficiency of inventory management are the entrenched attitudes of different departments, which if viewed in isolation are all contrary to one another:

1.Finance requires lie lowest possible inventory level

2.Purchasing wants the bulls discounts

3.Sales and marketing want to meet every level of demand

These situations point to a dire need to establish the highest level of coordination and responsibility which cuts across all the traditional departmental political barriers, hence the move in retailing to centralized in inventory management.

Within the control of inventory management of problems associated with

  getting it wrong fall into two categories:

High Inventory levels, Result in:

1.Higher investment with the concurrent increase in interest charges

2.Storage facilities having to increased

3.If self life is a consideration then, out of age" product could result

4.Imbalances in product mix where storage facility are geographically distant

Low Inventory Levels, Result in:                                                                 

1.Part order deliveries

2.Progress chasing costs

3.Administration cost of supporting part order

4.Higher picking cost

5.Distortion of demand patterns

6.Order cancellation

7.Expensive order processing

8.Under utilization of storage and transportation facilities

The implication of each or all of resultant condition are rarely recorded which is surprising when their impact on the bottom line can be so great. Unfortunately, very few information systems are designed to identify problem areas, transaction processing being the fundamental reason for installing computer which is a genuine under utilization of good resources.

Many of the inventory management techniques utilized are manual and therefore, contribute towards the just in case syndrome. Of course, the opposite is just in time Inventory Management. The concept is accepted by many management teams but not ideal for some body else. The major reasons being given for not entering the fray- "Our business is different and cant get our suppliers to accept the require service levels our demands cycles are too variable" (probably caused by excessive sales promotions).

What is being forgotten is that even if the ultimate aim of Just in Time (JIT) is not achieved, or is conceivably impossible to achieve, to have commenced the journey will highlighted many opportunities for making efficiencies or improvements. It is far better to set your sights high and achieve a part of the stated aims then not to have done anything at all. The principles of Just in Time can be applied in part, but, not without good information technology.

Many companies don't manage their suppliers correctly, particularly as the management relates to JIT, many controls within the purchasing function don't relate to the efficiencies of inventory management but rather to the rejection of purchase prices and the obtaining of bulk discounts.

The balancing act is that of:

Obtaining the materials or service, at the lowest cost, the most frequent

Delivery service level to minimize the inventory levels

Customer Service:                                                                                                         

This is the subject on which most sales directors or managers work and yet, few really act to find out what the customer really want. The importance of understanding customer service, not only point from the retail point of view, but also from the central warehousing stand point, can not be emphasized sufficiently.

Without a pre-defined customer service policy, all the effort placed into inventory management, depot efficiencies and resource simulation will be wasted as, this elements of the supply chain forms the standard upon which:

1.The Inventory management policy

2.The sizing the labour force

3.The resources allocated to vehicles, warehouses and system

   are all calculated and justified.

 Developing a customer service policy requires the analysis of four major area:

1.What the customer requires and needs

2.What the competition provides

3.What will be the likely demand of the market place

4.What are the current service performance levels 

It is important to recognize that customer service levels encompass activities, which go beyond the traditional measure of:

Completeness of order

Timeliness of delivery

Query handling

But also must consider:

Store Layout

Customer care

Store cleanliness

Customer complaints

Marketing

Value added range

Keeping the aisles free of merchandisers during peak

  shopping hours

Customer safety

To establish your customer service policy, the following exercises are recommended:

 Identify current customer service performance levels and

    measures in use, they relate to

Order (line, carton etc ) fulfillment rates, including all areas 

    of controllable error, Product promotion phasing, customer

    non-cooperation, as well as the  obvious areas of

    seasonality damages, substitutions, mis-picking, input

    errors, sales forecasting and delivery scheduling.

Assisting customers in finding products

Helping with queries, however, mundane

Timeliness of delivery

Information content on documentation

Information content on packaging

Packaging quality

Market support

Staff training in customer care

Obtain your customer views on future changes in the patterns of ordering and general trading, the requirements for range changes, the introduction of value added products, your company's performance compared to the competition. It is perhaps an obvious statement but without customer you do not have a business, so examine your organization, critically and objectively, take the list of your customers requirements and needs, both the generalities and the specifics and details where your organization falls short against the list.

Identify where it goes wrong on you, most often, try to establish the cause from the effect.

The final consideration must be for you to establish:

1.How does your organization wish to compete in the market place?

2.How this levels of competitiveness places you against your competition?

   and your identified customer requirements?

3.Can you afford to provide the service?

4.Can you afford NOT to provide the service?

5.Are their trades offs to be made with the customers?

Depot sitting, function  and efficiencies:                                                                   

This would be a nice, simple, purely technical subject were in not for the fact that top management, without detailed knowledge of current distribution potential, can not keeps their hands off the subject.

There is a view which places stockholding depots, areas and warehouses into a precise category, that of being required, not to provide adequate service to your customers which can be served in a variety of ways without such facilities, but, to make up for the inadequacies for your planning or that of your suppliers.

If you consider stocks as being a cost which is at least mainly a function of failure in the supply chain and never some positive benefit or cushion of comfort you will be taking a properly prejudiced view against such stockholding points.

What most companies call a depot really is a warehouse, because the environments are dissimilar. A depot is sited to serve a customer base, both existing and perceived. A warehouse holds excess stocks.

A fundamental argument concerned with customer service policy is that of order fulfillment, what would your customers rather have:

48 hour turn round from order to delivery at 90% fulfillment level, or 96 hour turn round from order to delivery at 95% fulfillment level or 100% availability at shelf of all products, or 97% availability at shelf with a wider range of alternative to choose from in the event of out of stocks. 

The real question is what can you afford. Experience shows that if 100% fulfillment or requirement is satisfied, whether that be within 24 hours from a warehouse or immediately from the shelf, ignoring the complicating factor of cost then their is an over stocks situation and delivery facilities are over resourced.

Some major retailers have increased their numbers of depots but, have change their functionality and the justification for creating them. With extra facility being offered by the additional depots, the supply service to the stores has introduced new replenishment methods and technologies.

The major factor in this sophistication of the supply chain is that of increasing depot efficiencies.

Depot efficiencies have had to be increased to satisfied the requirements at store level to:

1.Reduce stock levels

2.Increase the product range within the same shelf space

3.Improve customer service

Each activity has been analyzed to establish its place and importance in the supply chain and the effect that poor performance of the activity can have on the other elements.

The standards are monitored and actual performances compared to the set standards, variances being reported on to management for them to analyze and respond to

Efficiency levels and standards apply to areas of activity such as:

1.Goods in receiving

2.Pallet put away to bulk storage

3.Picking

4.Cast till throughput

5.Shelf merchandising

6.Customer service

7.Vehicle loading

8.Rollcage fill

Not an exhaustive list list but representative of the areas which required to be monitored. Each one being elements in managements control of the supply chain.

Resource Simulation:                                                                                                     

This area has been extensively embraced by those retailers who are in the forefront of the most profitable retailing practices, with varying levels of success. It can not be effective without the correct level of detail and management information, So therefore, Information technology is a vital support tool in the simulation of resources.

A further principle to be applied is that of SIMPLE APPROXIMATION , it is highly onerous in time and resources to undertake a simulation of every single action within the supply-chain and it is very doubtful if many retailers could wait for the time required to update the database and undertake the data processing for the modeling exercises.

Resource simulation Can be defined as:

The analysis of history and projections, the combination of external events

( those that are controllable ), the application is standards, the influences of decision support modeling structure in order that the implication in changes in the supply chain can be ascertained.

Such changes are given below each event having a different effect on the supply - chain and the requirement for the operation to increase or decrease the resources likely effects of these changes in the supply chain are also highlighted:

1.   The Introduction of new products

Changes in racking requirements

Changing in shelf layouts

Advance stock build

Special delivery to stores

2.   Changes in Demand

Under or over utilization of recourses

Under or over stocks

Lost sales

Product obsolescence

Product going past sale by date

3.  Development of new Markets

The need to change the supply chain

The need to provide extra resources

Funding changes

 4.  Promotional Activity

Extra labour

Extra storage space

Extra shelf space or changes in the shelf refill cycle

Distortion of historic data

5. De listing of products

Reduction in shelf space required

Changes to shelf layout

Reduction in labour

Changing in roll cage and therefore vehicle requirements

 6.  Reduction in labour force

Increased overtime for remaining labour

Reduced customer service performances

Changes in number of shifts 

 7.   Improved Depot / Warehouse Labour efficiencies

Ability to handle a greater throughput of product

Reduction in costs

Reduction in labour force

8.   Introduction of new equipment

Ability to handle a greater throughput of product

Reduction in labour force

Improved efficiencies

 The list does not represent all the effect s but serves to demonstrate the different effects that can be generated. It will  be apparent that without the modeling of the impact of such changes on the supply-chain management will be in Reaction Mode and therefore, managing crisis not the business.

Logistics Managements:                                                                                               

Logistics management draws all the elements of the Supply Chain into a common environment and creates a structure where the supply chain elements are evaluated and improved to the benefits of the organization as a whole and not just the parochial interests of the department in which the elements normally lies.

One of the humorous definitions of logistics managements that it is:

An exercise in how to trade on other peoples corns 

A strange definition at first reading but if you examine the implications of logistics engagement, it is requiring excellence in fields and disciplines not directly controlled by logistics, in order that the optimum levels of performance can be attend within those areas notionally allocated to logistics.

This comment can be highlighted by outlining the aspects of corporate management as they relate to logistics management within the supply chain:

Sales forecasting

Sales and marketing

Inventory planning

Sales, Stores, Operations and finance

Customer service targeting sales, warehouse operations, distribution &

   monitoring

Depot sitting and efficiencies warehouse operations. Distribution and MIS

Resource simulation MIS.

Management Information MIS.

To take away the responsibility of these elements from the existing corporate owners will cause aggravation but the main advantage is that it creates a management environment, which is not liable to prejudicial influence in its control and action taking. Logistics managements within the supply chain provides the focal point for the combined effort of the management team because it requires input from all sector of the corporate structure and as the resource plans for the demand of pattern fulfillment will emanate from its utilization the political implication of business sectors with their own objectives and boundaries of control and authority, having to give up jealousy guarded elements of power, will become a far lesser problem. The rewards to be gained from the application of logistics and supply chain management are:

Cash:

The honing and turning of the elements within logistics and supply chain management will create bottom line profits. The more efficient a business becomes, when works in the cash hungry environment, must provide a better control of cash and therefore, a lesser degree of cash outflow.

 Customer Service:

Although customer service is still be determined by perceived needs of the marketplace, as quantified by management, the application of the principles and practice of logistics management will highlight the implication of meeting various service levels and therefore, enable the management team to base its customer service level policy on sound cost and logistics information.

Coronaries:

Although this benefit might be perceived facetious, it is a fact of the stressful management life, supported by medical evidence, that coronaries occur most when assisted by stress factors. Logistics management can reduce the stress caused by inter departmental friction; the need to fight fires , and requirement to achieve impossible goals because someone who sets the goals does not understand the logistical implications.

Profits:

As stated before, any improvement in the efficiencies of a business will reflect themselves in cost saving and therefore, higher profit margins.

Planability:

Given that certain market influences are beyond a company's control, logistics management can highlight the implications of such influences and also enable solutions to be simulated and evaluated. Changes in any of the elements effecting logistics and the supply chain can be simulated and their impact ascertained.

Company projections can be converted into, Logistics plans and evaluated by management prior to implementation, with a high degree of confidence as to success of the plans.