In today’s competitive grocery space, supermarkets and discounters have had to adapt their strategies to appeal to a broader consumer base as well as more price-sensitive shoppers.
Traditionally, discounters have mastered efficiency with their ambient stock. As they are increasingly adding fresh items into their assortments, they need to redesign their supply chains for increased speed. Supermarkets, on the other hand, have mastered the agility and responsiveness required for fresh food but are often lacking in efficiency when it comes to ambient products. As we have previously noted, food retailers, regardless of model, must understand and manage both product streams to be successful.
- Fresh products require a responsive grocery supply chain. Fresh items need to be delivered in a just-in-time manner, closely in sync with demand, to ensure both optimal freshness and minimal spoilage.
- Ambient products should be managed for operational efficiency. By design, these products are not as time sensitive and do not carry as high a risk for waste or spoilage. When managing ambient products, retailers need to focus on high capacity utilization and minimized handling costs throughout their supply chains, including in their stores.
Just-in-time delivery of fresh products requires granular forecasts that take into consideration everything from weekday-related variation to weather impacts. In addition, the safety stocks of fresh products need to be dynamically optimized to continuously balance the risk of spoilage with the risk of lost sales. Furthermore, staff needs to be available for fast replenishment – particularly in the case of ultra-fresh products that need multiple daily restocks.
Yet, applying the same just-in-time replenishment approach to ambient products can quickly drive up operational costs. To be cost-effective, retailers need to minimize the number of touches required to get ambient products to the store shelf. To accomplish this, retailers should aim to fill ambient product shelves completely with each delivery (space-aware replenishment), not just the amount needed to meet demand until the next delivery.
In addition, by optimizing store planograms to match both daily demand and replenishment schedules, retailers can ensure that more goods fit straight on the shelf. Direct-to-shelf replenishment reduces the need for staff to move products between backroom storage and the sales floor.
Costs can further be reduced with dynamically optimized batch sizes (case packs vs. pallets) based on seasonal demand and available space in each store. When goods are delivered in reasonably large quantities direct to the store shelf, retailers can reduce costs in both distribution centers and in-store shelf replenishment.
Modern forecasting and replenishment software allows retailers to execute agile supply chain management of fresh products and lean supply chain management of ambient products in parallel. The best systems go even further by jointly optimizing both product flows for the highest productivity.
A good example of this is the application of main replenishment days, which concentrates replenishment of ambient items displayed in the same area of a store, such as detergents and other laundry products, to specific weekdays. This improves replenishment efficiency, reducing staff movement throughout the store. Overall, we have seen reductions of up to 20% of the time spent on shelf stocking following the introduction of main replenishment days.
Further, main replenishment days can be optimized around the delivery needs of the fresh assortment, which often peak later in the week in preparation for consumers’ weekend shopping. This creates a smoother overall goods flow throughout the supply chain, enabling better capacity utilization and easier work-shift planning. Finnish retail giant S Group, for example, uses RELEX’s AI-based optimization algorithm to smooth its goods flow throughout the week, leading to a more evenly distributed workload in its stores.
By using the latest forecasting and replenishment technology, retailers can achieve the responsiveness required by a high-quality fresh offering while at the same time planning the replenishment of their ambient products for cost-efficiency. The result? Reduced spoilage, improved availability, reduced operational costs, smoother and more predictable product flows, and happier customers.