Inventory management in food retail is a balancing act between availability and shrinkage
A typical characteristic of fruit & vegetable products in the produce category is that suppliers, packaging and prices change throughout the year. Produce buyers know exactly when to switch countries but do they know how much they have to buy? How can they ensure optimum in-store availability without having to make expensive last-minute purchase orders that kill margins?
The supply chain for produce is extremely dynamic. Supply, quality and price depend on the crop yields in different countries. Furthermore, consumer demand can fluctuate hugely from one day to another. As a result, to find the right balance are often real specialists in this area, produce buyers have to be real specialists in this area.
They know the global fruit and vegetables market and they know exactly what is harvested when. For example, in the summer they source their cauliflowers from Dutch farmers whereas, in the winter, they look to Spanish or Italian suppliers. They also have to have a sixth sense when it comes to quality and price. Furthermore, the continuous and timely switch of suppliers is in their DNA.
Calculating demand in units or kilos
Buyers of fruit and vegetables know everything about quality, price and country of origin, but are often left in the dark when it comes to the expected consumer demand. Order quantities are based on orders from the past without checking whether these purchase orders were actually right in the first place.
Moreover, the sales of fruit and vegetable are strongly influenced by the weather. If the weather is much better than expected, demand for iceberg lettuce and other BBQ-friendly products will rise while demand for many other fruit and vegetable products drop.
A good forecast is crucial for negotiating the right contracts with suppliers and placing daily orders. However, without the right insight, the risk of overordering and thus avoidable shrinkage is greatly increased. Equally, empty shelves are also more likely as a consequence of under-ordering. Because stock-outs are totally out of the question for many food retailers, buyers often have to place all kinds of additional orders with suppliers; or worse still… the competitors. The prices at this point are obviously much higher and as a result, these last-minute actions are real margin killers!
By distinguishing between generic products (e.g. cauliflower) and varieties of the same product (e.g. Dutch cauliflower, Spanish Cauliflower etc.) we always ensure that buyers have a complete picture of sales performance.
Furthermore, the specific units used by different suppliers are automatically converted to the standard unit to ensure no misunderstandings arise.
Optimal order quantity
Suppliers from different countries have different delivery times, delivery periods and pack quantities. In produce, the optimum order quantity is not a single number. Instead, you will have to differentiate the order quantity depending on the country of origin and supplier.
By using software that calculates a reliable forecast of the daily demand, ensuring the optimal order quantity per supplier, a buyer can optimally determine which supplier is offering the best deal. The rest of the process can then be fully automated.
In order to curb the extreme dynamics in supply and demand and make maximum use of the market knowledge of the produce buyers, food retailers must have in place advanced supply chain software. By giving purchase teams insight into the expected demand as well as providing optimal ordering advice, they can concentrate fully on their core responsibilities. Ultimately, by ordering the right quantities, shrinkage and "expensive" rush orders can be directly avoided.