By Dan Mitchell, Global Director, Retail and Consumer Goods Practice, SAS
Within retail, there is one segment that is set apart from the others, with unique supply chain considerations, perishable goods, changing prices, multiple vendors, and distinct consumer behavior – grocery. No matter the household makeup, consumers tend to shop for groceries several times per week. Often shoppers visit more than one store, either to find specialty items or shop weekly specials. And with the average number of grocery trips being made per month decreasing nearly 11%*, it’s more important than ever for retailers to keep consumers coming back into their stores consistently.
Because many of the same goods are available in different stores, following the shopping journey with transactional data is vital. One week a customer may buy milk from Retailer A, and then the next week from Retailer B. And as the price of food increases, along with the cost of gas to go shopping, store or brand loyalty is quickly being replaced by convenience.
Grocery retailers must have goods available in the store to support these customer trips – and ensure buyers get everything they need. In fact, on-shelf availability is the name of the grocery game. But they can’t do it alone. Grocers must rely on produce providers and consumer packaged goods (CPG) suppliers. Collaboration across the supply chain is the key to success.
- 70% of surveyed US consumers stated they had recently changed the way they shopped for groceries.
- 51% are looking for items on sale more than usual.
- 38% are buying store-brand items rather than name brands.
Share the wealth (of info)
Grocers have the POS data to know exactly what people are buying – and when. But the CPG companies supplying that retailer with products only see what the grocers are ordering. They have no idea what customers are truly buying (or when). In other words, although ordering encapsulates demand, inventory and desire to have on-hand goods, the actual CPG order is a pure function of inventory state.
And that’s where a big lag can occur. If a significant order is made based on inventory and then it’s shipped, it can become disconnected from the actual consumer demand signals. This can cause interesting behaviors in the supply chain, including out-of-stock in one region or overloaded inventory in another.
What’s the solution? Grocery retailers need to share actual sales and POS data with CPG companies. When this happens, CPGs can better understand consumer demand signals, and they can match their manufacturing to those demand signals instead of matching it to orders only.
Another piece of the puzzle to develop supply chain harmony is around promotions. Think about this: If a grocery retailer was planning a Super Bowl promotion around a particular snack food (chips, pizza, etc.), sharing that information with the CPG provider could add that demand planning process to their system, allowing them to proactively prepare for the needed supply. Together, the partners can collaborate to better predict demand and then supply inventory for that kind of event.
Want not, waste not
Forecasting and managing perishable goods and produce is another distinctive supply chain challenge for grocers. Consumer demand can be difficult, especially based on the quality, types and varieties of produce. However, it’s vital to capture consumer information since inventory excess becomes waste – with no opportunity for markdown or warehousing.
The right data and analytics tools can help identify customer behavior, as well as track the quantity and quality of produce coming in – and going into the dumpster. Plus, when the grocery retailer works hand in hand with produce/perishable goods suppliers, there’s a huge opportunity to predict and minimize wastage. And the impact is far-reaching. Not only will the grocer reduce their waste to improve profits in this area, but these efforts can also significantly benefit their environmental, social and governance (ESG) goals. Moreover, as overall food costs continue to rise, food waste reduction can also ultimately lower the cost of produce for consumers, so more people can afford to eat fresh and healthy food.
Improving situational awareness
Over the past couple of years, a lot of people have realized that it’s not enough to focus on your own supply chain. Having situational awareness of your supply chain partners is becoming a priority across vertical segments, including grocery retail. This awareness includes sharing data to maximize agility and minimize disruption, as discussed. But it also involves being just as cognizant of the supply chain risks of your partners as you are of your own.
What are the adjacent supply chains that you rely on? Do you understand their risks and what effect specific areas of disruption will have on your business?
For instance, you may rely on a vendor that supplies flour, and they rely on raw materials from another supply chain. Within that supply chain, the wheat is being cut and put in a silo. But there’s a shortage of parts to fix the tractor to do that work. So you’re affected because you can’t get your flour.
Going beyond increasing the quality and accuracy of the data used for making supply chain decisions, companies are now looking to analyzing risk areas. Using digital twins and simulations it’s possible to create a computerized replica of supply chain dynamics. When a disruption does occur, these methods can quickly quantify the impact and help you understand how long it may take to recover. You can even test for supply chain resiliency by running analytic simulations of fictional future disruptions to help you plan the best path forward.
Make supply chain collaboration a priority.