The food and grocery industry is losing millions of pounds every year by stoking demand for products, then failing to properly plan to meet demand, warns international food and grocery expert IGD.
Failing to demand plan effectively leaves suppliers and retailers vulnerable to spikes in demand for their products, which they cannot meet, and which can lead to consumers deserting their product, says Darran Watkins, Senior Business Analyst at IGD, and author of its inaugural International Demand Planning and Forecasting report.
The report says retailers and suppliers need to improve reviews of previous sales forecasts and to be more systematic about demand planning.
To take just one example, FMCG promotion accounts for around half of all marketing budgets, yet many retailers and producers are failing to review the success of previous campaigns, or match production to expected spikes in demand, he explains.
IGD research shows that when confronted by an empty shelf, consumers are likely to desert a brand for a competitor, and consistent or long-term product scarcity can lead to a loss of distribution or listing by a retailer.
The report recommends retailers and suppliers:
- review the success or failure of previous attempts to increase sales
- introduce contingency planning
- implement demand planning IT systems
- share more information along the supply chain
Missing information, unclear processes and better collaboration with trading partners are all needed to help address the problem, adds Mr Watkins.
As well as the risks of understocking, we have seen evidence of a bullwhip effect, where fluctuations in demand become larger at every step along the chain, unnecessarily increasing inventory levels at all points.
The report reveals that 30 per cent of respondents do not have a specialised IT system to help plan demand, and found significant fluctuations in the amount of information shared between retailers and suppliers: 26 per cent of suppliers stating that none of their retailer clients supplied them with any retail data at all. Almost half of suppliers did not offer any staff training on demand planning.
Although the report suggests the industry has some way to go in implementing demand planning fully, the good news is that there are opportunities for major financial returns by adopting demand planning, and reducing wasted expenditure across the supply chain, said Mr Watkins.
He adds: Although the report suggests many retailers and suppliers have room to improve their demand planning, the good news is that it also shows there are opportunities for major financial savings by improving demand planning, which could significantly reduce wasted expenditure along the supply chain.