SHELF LIFE OPTIMISATION IN INDUSTRY
This article explores how some of the food industry’s biggest names have achieved shelf life optimization to realize their supply chain goals.
With the support of advanced statistical techniques and intelligent algorithms, retailers have dramatically reduced the amount of time they spend worrying about replenishing stores. By taking advantage of tools that consider a broad range of data, including historical demand, POS data and current stock levels, retailers can calculate stock requirements for each store with far greater accuracy. The result is structural shelf life optimization across their entire range.
Take, for instance, the Dutch retailer, Udea: the retail chain is currently in the process of introducing what the Commercial Director, Jan van den Brink, calls “‘autonomous ordering.” Every day, transaction data and stock levels from across all 70 of the chain’s EkoPlaza stores and the distribution centre are analyzed with the support of advanced software to calculate orders for the following day automatically. Since starting the project, over half of the stores now receive goods in this way.
As part of this process improvement, the local entrepreneurs who own the franchise stores lose some autonomy. However, as Van den Brink explains: “Despite this, there was no resistance. The process we are now trialling ensures that control of the shelf space on the shop floor remains the same: the local managers can still determine which items they want to include in their range. Furthermore, the store manager can now also see what the minimum stock requirements are to ensure the shelves look full and attractive.” As a result, the store managers, including those who are self-employed, can also enjoy the benefits of autonomous ordering.
Although many managers may have been more accustomed to using a scanner to determine order requirements themselves, this process was often subjected to errors. Van den Brink goes on to add: “Human mistakes are unavoidable. However, with the introduction of this new process, we have seen inventory levels reduce while availability continued to improve. In most stores, the introduction of autonomous ordering has helped increase availability from 94 or 95 percent to 99 percent.”
REDUCING OUT OF STOCKS
All 500 of Spar’s stores are operated by independent entrepreneurs. Although the business has several pressing issues that have to be prioritized, the supermarket chain is considering ways to provide its network of entrepreneurs with more accurate order advice. Edwin Brekelmans, supply chain manager at Spar, explains: “We believe in the power of entrepreneurs. After all, they know the local market. However, to generate more revenue, what these business owners require now is more support with their online activities.”
In the coming year, Spar is set to invest in a new POS system which will contain a module providing further capabilities to help record out of stocks and waste. “We are confident that if we help the business owners to reduce the number of out of stocks, they will, in turn, generate more revenue.”
While the new POS system will have the capability to inform and advise the store managers, any required action will have to be completed manually. “Although we are not quite there yet in terms of being able to replenish inventory levels of an item automatically, this is a future wish for the business,” states Brekelmans. Once implemented, this will help the business to ensure shelf life optimization across all locations.
TAMING THE BULLWHIP EFFECT
Sligro is also looking for ways to improve its inventory management processes across its supply chain. The business’s foodservice division consists of 47 cash & carry wholesalers and eight wholesale outlets delivered to the customer. Also, Sligro’s food division consists of 127 EMTÉ supermarkets stocked via two distribution centres located in Kapelle and Putten.
“The managers at these stock locations currently manage their own inventories. However, this is far from optimal. Given that the customer-supplier relationship is between the stores and the distribution centre, it is tough to gain actual customer demand visibility. We want customer demand to be directly translated across the entire supply chain,” explains Nico Kuipers, inventory manager at Sligro, while referring to the bullwhip effect.
Due to the uncertainty between the demand from the independent stores and distribution centres, the stock managers unknowingly build in additional safety stock. “Although, on the whole, availability is good, in order to achieve this, we have to hold a lot of stock,” says Kuipers.
THE RIGHT STOCKING DECISION
Given that the number of articles and the level of volatility across the retail food division is significantly lower than the food service branches, the pressure is far less intense. Despite this, Sligro is still looking for ways to improve further the way they manage their inventory and ensure shelf life optimization across their range. Kuipers explains: “One of the questions we have to ask is whether we should hold slow-moving items in both or just one of our distributions centres in Kapelle and Putten. The latter will lead to lower inventory costs, and because of the higher stock turn, product quality will be higher. However, given that trucks would have to travel back and forth between the distribution centres on a daily basis, this will inevitably lead to higher handling and transportation costs.”
Spar has already applied this concept to both of their distribution centres in Waalwijk and Alkmaar. Although the vast majority of their assortment is stocked at both locations, around 600 to 650 slow-moving fresh items are stocked exclusively at Waalwijk. Every day, two trucks transport the required fresh articles from Waalwijk to Alkmaar, where they are transferred onto trucks destined for supermarkets located in the north of the Netherlands. “As a consequence of the short product shelf life, the risk of shrinkage is particularly high for these items. By stocking these items in just one location, we require much less stock. This, in turn, results in reduced waste as well as fresher products in stores,” says Brekelmans.
Software tools with smart algorithms are of great value to inventory managers. Udea, Sligro and Spar utilize Slimstock’s retail inventory optimization solution, Slim4, to manage their fresh items. Slim4 has been enhanced with new functionalities to help manage product groups.
“Slim4 is well suited for forecasting demand for each item and translating this into purchase order advice. Before this, our requirements could only be calculated on a monthly or weekly basis. Although this information could be used to calculate a general figure for average demand per day, this did nothing to support the planning of items with a short shelf life. Given that a store may sell ten units of an item on Monday but then sell 35 units on Saturday, for fresh products, you need to determine exactly how much you anticipate to sell each day. With Slim4, this is possible.” States Van den Brink.
“Thanks to this additional functionality, we now have a much tighter grip on our inventory, and as a result, we are able to offer much fresher products while keeping waste to a minimum,” adds Brekelmans.
For Udea, the next challenge is to start utilizing Slim4 to help plan the ultra-fresh produce items. “The sales pattern of these items is far more volatile than other fresh items. The demand is highly seasonal and fluctuates every week due to customer’s sensitivity to price. As a consequence, managing these articles is a particular challenge for us,” explains Van den Brink.
INFORMED DECISION MAKING
Kuipers also stresses the importance of distinguishing between each of the various items when embarking upon shelf life optimization goals. For instance, give that there is no alternative to a cucumber, this means a high level of availability is required. In contrast, if a certain variety of salad mix is sold out, consumers can just as easily choose a similar variant. “Similarly, while brown bread is a good alternative to whole wheat bread, it is no substitute for gluten-free bread. We cannot guarantee the availability of 99.9 percent for every product as customers will simply not pay for it. As a result, we have to make an informed decision.” explains Kuipers, who argues that many of these decisions have to be made through taking a formulaic approach. “As part of the formula, you sometimes have to accept additional supply chain costs. Our role as supply chain managers is to make these costs viable.”
GOING BEYOND INVENTORY REDUCTION
The stories of Spar, Sligro and Udea highlights that inventory reduction is not an end in itself. Retailers must always strive to offer the freshest products and highest level of service. Given that this must be achieved at a minimal cost to the consumer, the cost is therefore always an important consideration. “Sometimes, you have to accept higher inventory costs in order to achieve a more efficient supply chain. However, this should always be on the condition that the quality of the product is not compromised,” says Kuipers.
Likewise, in addition to keeping inventory and waste costs under close control, Spar also keeps an eye on transport and handling costs. This is one of the reasons why Brekelmans intends to use the economic order quantity functionality within Slim4. This module calculates the economic order quantity based on the items’ given costs and the available space in the distribution centre. “Whereas now, we might receive one pallet layer of a specific item; it could be more efficient to order three pallet layers instead every three weeks. However, this does not work if you have to discard the third layer after the second week as the products have perished,” explains Brekelmans. By ensuring shelf life optimization, the business can minimize the level of waste through poor decision-making.
Brekelmans also advocates greater collaboration with suppliers and logistics service providers, and other food retailers. “If we fill the trucks to capacity, this keeps our handling costs down, and the logistics provider also benefits as this allows them to operate their fleet far more efficiently. We already have agreements in place with several logistics providers to ensure deliveries are made in a few trucks as possible. As a result, the number of journeys that the logistics service providers have to make can be reduced.” Brekelmans goes onto conclude: “We sometimes forget that the cost of an article is not only determined by the purchase price, but also by the logistical costs.”