Supply Chain Management 5 Deadly Sins

Retailers and manufactures alike have been making tough decisions in an effort to reduce cost during this difficult economic downturn. Leadership retailers like Wal-Mart, Target, Walgreens, Costco and Kroger have created highly successful business models based on the quality of the “consumer shopping experience”. They all use computerized automated replenishment to keep their shelves stocked with the best selling products consumers expect to find during their shopping experience. Leadership retailers use sophisticated consumer data base driven platforms that provides their Category Managers and Business Development Managers the hard data to design shelf plan-o-grams and 18 month business plans all designed to minimize out of stocks at retail. It is the manufacturer’s marketing and customer service organizations that set production and in-stock customer service performance targets for each of their individual products or stock keeping unit (SKU). Some of the largest manufacturer’s are artificially keeping inventories lower than normal in an effort to cut cost. However they may be costing themselves consumer sales at retail and encourage their consumer to try a competitive product.

1. Lowering customer service levels (targets) that will knowingly cause retail of stocks in an effort to save money on production and warehousing cost.

2. Inconsistent on time delivery and in stock performance standards by manufactures. These can vary widely by individual marketing, production and warehouse department.

3. Selecting shipping companies based on who can deliver at the lowest cost. They typically under perform with late deliveries. More and more retailers are assessing penalties and fines for manufacturers with late deliveries.

4. Supplying the sales organization with misleading or inaccurate information on inventory targets and product availability. The retailer needs make informed decisions. Nothing is more challenging than telling a key decision maker at a retailer you can’t supply a certain product and they hand you a receipt from a purchase they made on the same item at Wal-Mart.

5. Not being up front and honest with the retailer as to the duration of the supply cuts as products on long term allocation are often discontinued. This is done so the retailer Category Managers weekly in-stock performance scorecard is not negatively affected.

Most tier one retailers in stock positions are protected by manufactures. They may discontinue items manufacturers are unable to supply 100% of all orders placed, regardless of how well the product is selling. Wal-Mart, Target and other tier one retailers may have displays of a specific product on their floors while other tier two and three may be experiencing wide spread out of stocks on the same item and may be told that there is an “allocation” on the item. At the In-Store Marketing Expo, a leading Target Director stated that some 85% of all final purchase decisions are made in-store at the shelf. Planning for reduced inventory levels that will cause out of stocks at retail will not only lessen the quality of the shopping experience retailers are expecting to provide their consumer, it will cost the manufacture credibility with the retailer and most importantly provide a competitor the opportunity to sample a potential new consumer.

If you need help with supply chain management, please call Gary at (920) 265-9500.

To Your Success!

Gary Pawlovich, Executive VP of Business Development
The Geisheker Group marketing firm
(920) 265-9500
"We don't help you compete, we help you dominate!"