What to change?
The Decisive Competitive Advantage for a CPG - Consumer Packaged Goods company is to increase product turnover in retail chains.
The VMI offer, or Automatic Replenishment, is a solution for a small number of retailers. On the other hand, retailers have a small number of suppliers that can deliver VMI or automatic replenishment. Out-of-stock levels in retail are high, and consequently there is loss of sales for manufacturing companies. ERPs set shipment priorities by internal criteria, or by observing Local Optimum conditions, but do not consider risks related to loss of sales.
What to change to?
To ensure that there is no out-of-stock at the point of sale, manufacturers must prioritize order delivery taking into account the risk of product shortage at the store. Based on this information, the manufacturer can better plan its delivery in order to increase the turnover of its products and, at the same time, the retailer can increase availability on the shelf, reducing for both parties, losses caused by product shortages.
How to cause the change?
It is necessary to adjust shipment prioritization for order items using the Throughput Value Day (TVD) indicator, which means the risk value of sales loss, whose calculation is made considering gains and the number of days for product shortage risk, and is included in the manufacturing ERP. To maintain a single priority criterion, retail networks are integrated into a single cloud system that allows the standard calculation of the TVD indicator, updating daily the priorities in the ERPs of the manufacturing companies. This is a new dimension for the supply chain where all retail networks are integrated to manufacturing companies.
Product shortage represents a direct loss of sales for both the retailer and the manufacturer. Only in December 2016, in Brazil, the amount lost by out-of-stock in supermarket retailers was over R$ 900 million. In this scenario, the challenge of reducing losses can be solved with shipping priority using TVD.
However, difficulty of implementation can be an obstacle, taking into account the practice adopted by manufacturers and the market’s maturity level.