Nuggets on Consumer Goods and Retail Supply Chain

©2012 Vector Consulting Group. All Rights Reserved.

www.vectorconsulting.inwww.vectorconsulting.in

VCG employs the 'Theory of Constraints’ philosophy to bring about quantum jump in performance of organizations in its target industry clusters.

LEVERAGING THE POTENTIAL

RetailConsumerGoods

EquipmentManufacturing

Engineering& Construction

Automobile &Auto Components

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Insights on Consumer Goods and Retail Supply Chain

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The Hindsight Bias

Every consumer goods organization tries hard, every month, to get the Right product at the Right place and at the Right time.

But in hindsight, they always get one of the entities wrong.

Since in hindsight, everything looks obvious they keep trying by improving on the forecasting techniques and keep getting one of the entities wrong. Right product at

the Right place and at the Right time

can be determined only in hindsight

The only way out of this hindsight error is to have ALL the relevant products available at ALL the relevant places, ALL the time.


Win-Lose? or Lose-Lose?

Many consumer goods brand companies expect the retailer to provide their requirements much ahead of the time of real demand. This nearly guarantees the problem of stock outs on some SKUs and excess on the others.

Resultant is loss sales and discounts – a lose-lose for both partners

What leads to loss in sales & discounts?


Quantifying the hidden potential

To understand the real potential reach of a product, multiply the "retail penetration" (no. of shops your brand is present/total population) with "portfolio penetration" (no. of SKUs held by a shop/total SKUs meant for the shop)

Determining product potential


What not to do in a downturn

Some consumer goods companies are now facing low capacity utilization due to down-turn. The knee jerk reaction to this situation is likely to be cost reduction initiatives, which can kill capacity. Or even a worse reaction would be planning production to meet original sales targets for a subsequent attempt to sell by huge discounts.

The only way out is to maximize the reach and range in the market.

Maximizing market reach


Do you really understand your customer?

A sales manager's level of intuition about the end customer demand is negatively correlated to the level of inventory in the

supply chain.

Relation of intuition and

inventory


Perception determines reality!

If a retailer has a poor perception about delivery or service capability of the supplier company, then the impact on potential loss is significant, as he may play an active role in switching customers to competition.

How important is retailer’s perception?


Forecast accuracy ?

Fast reaction and not accurate forecasts.

What is the key to supply chain?


Killing a product?

Conservative mindset of retailers, who hesitate to buy new products, can come in the way of placing the new products at retail counter.

A product can fail even before it has a chance to prove itself.

A guarantee given by the firm to take back unsold items installs confidence in retailers to try more new products, which in turn increases probability of success of new products.

It is important for a product to prove itself by being on

the shelf first


Rotations and Margins

Industries which provide higher margins to their distributor invariably have higher supply lead time than the ones which

provide lower margins. ( Higher lead times means higher inventory and lower rotations . So it has to be compensated

with higher margins)

Distributor margins are positively correlated to

supply lead time

©2012 Vector Consulting Group. All Rights Reserved.©2012 Vector Consulting Group. All Rights Reserved.

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Nuggets on Consumer Goods and Retail Supply Chain