The good news for consumer brands operating in the current, challenging supply chain environment is that the data available — and the technologies for working with that data — have become so advanced that they can help mitigate many of the business problems that stem from volatility.
How can brands take control of their sales and supply chains in such an unpredictable climate?
Let’s take a look.
Take Control Of What You Can, When You Can
The bottom line is that you have little control over trends in material and shipping costs.
Focus on things that you can control, and the time frames in which you can control them. Most brands will set annual plans and then execute against those, but forecasting that far ahead in an unpredictable world is difficult. There are just too many variables at play. Instead, focus on the short and medium term where you have the most control, and the best data for making smart decisions if you choose to utilize it.
Analyze and Adjust Your Trade Promotions
Consumer packaged goods companies worldwide spend about 20% of annual revenue on trade promotions, yet 59% of businesses — 72% of them in the U.S. — lose money on promotions, says McKinsey.
This is a huge cost center — generally the second largest for brands after cost of goods sold (COGS) — where effectiveness of spend is often poorly measured, if measured at all. Part of the challenge is that retailers often consider trade promotion dollars as almost a tax. But in a period of compressed margins, this is a huge area of spend that needs more scrutiny. Ultimately, neither you nor your retailer should be happy with a negative-ROI promotion.
Like all the factors I discuss here, there are long-term elements and short-term elements. In the longer term, you likely have a promotion calendar that stretches several quarters into the future. But your recent data on consumer preferences and promotion performance isn’t going to be as accurate that far out, since consumer preferences can and do change on a dime. So focus on optimizing your near-term promotions by analyzing any sales lift you see in the POS data during the promotion, then either cut marketing investments that aren’t paying off or double down on what’s working.
Avoid the Costly Mistakes of Overstocks and Out-Of-Stocks
Retailers and brands don’t want to tie money up in inventory they can’t sell, and is just sitting on a store or warehouse shelf. That’s the painful position many retailers faced late in 2022 when, as CNBC reported in November, Walmart, Target, Kohl’s, Gap and other retailers ended up marking down their “glut of extra merchandise piling up in store backrooms and warehouses.”
What initially seems like a good thing — you got a huge order — becomes a problem for both you and your retailer when those products don’t sell.
On the surface, out-of-stocks, which are a persistent problem for many consumer brands, may seem like the opposite of overstocks — but they both have the same root problem: a failure to match your supply and your demand. Chronic out-of-stocks cost food retailers alone almost 6% of their total retail sales – a problem that ends up costing brands and retailers many billions of dollars.
Use current internal and external data to understand your retailers’ inventory levels, what’s selling, and where and when it is selling. Empower your sales and replenishment teams with easy access to those insights so they can guide retailers to make the best choices. In the process, you will build trust.
Every company is constantly trying to strike a balance between having enough product and having too much. Decisions about how much to produce and when come down to risk tolerance. Manufacturing products far in advance may cut down on material costs, but you won’t have an accurate sense of real consumer demand. The more you can delay making a decision, the more control you have over matching your supply to demand as closely as possible.
Get Your Product to the Right Places
The next decision you can control is ensuring your products get to the right place. Inventory allocation is essential, with one report estimating that 53% of markdowns can be attributed to poor inventory allocation decisions.
Real-time demand and supply visibility can help you make better decisions about which orders to fulfill. If an order comes in from Walmart, your natural instinct is probably to ship that order if you have the inventory. But if you can see that Walmart doesn’t need that inventory, that Amazon does need it, and that you will be inventory-constrained very soon, those current insights could prompt you to decide to send product to Amazon — and everyone will be happier.
Having instant access to real-time point-of-sale and inventory data — by day, by store, by SKU — can help reduce mis-allocated inventory. This can enable brands and retailers to avoid running out of sunscreen in sunny Sarasota while having too much of it in Seattle. Remember: location matters.
Mis-allocated inventory and over-stocking are especially problematic for food. Thirty-one percent of food in the supply chain is wasted before it even gets to the consumer, according to the USDA.
Understand That You Need to Change More Than Your Mindset
Even just a couple of years ago, many brands were not particularly concerned about what consumers were doing today or this week. These businesses were quite comfortable relying solely on historical monthly and seasonal data, and possibly general guidance from their retailer partners, to decide what to do.
But the last couple of years, in which businesses began to experience a lot more uncertainty, changed the mindset. Yet because supply chain data exists in a range of formats and lives in various internal and external systems, brands are often limited in their ability to use data to gain insights in a timely manner. That results in lost opportunities to increase efficiency.
You need to have a real-time view of your demand and inventory, especially when there is more uncertainty, because your long-term plans are going to be less accurate. There’s a principle in supply chains called postponement — the idea that you delay making an investment until the last possible moment. In this new environment, it’s time for leaders across the business to apply this thinking to their sales and inventory decisions, to ask themselves “how many decisions can I start to make in a shorter and shorter timeframe?”
Every supply chain has a lot of waste. And at a time in which margins are getting squeezed, reducing costs, making the sale and adjusting to change are more important than ever.
Move Fast to Make The Best Decisions
Companies make thousands of decisions a day about what to produce, where to put product and what to promote. But they often make those decisions based on very limited information. And they can’t respond to market shifts without a unified view of daily SKU store-level data.
However, it is now possible for brands to get a real-time pulse on exactly what is happening with their demand and supply chains. They can then use that visibility to quickly sense problems, predict issues, respond to rapidly changing situations and increase efficiency.
Time is money, and technology is now available to help you make informed decisions fast.
Joel Beal is CEO and co-founder of Alloy.ai.
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