How to master fresh foods supply chain capacity planning

Jan 27, 2016 3 min

We have previously written about building accurate forecasts in order to order optimal quantities of fresh groceries. However, in grocery retail, some emphasis needs to be put on the supply side as well – it doesn’t really help to know how much you could sell if you can’t guarantee that you have enough in stock, on time. So once you understand how much will be sold on each day, the next step is to guarantee that the demand can be fulfilled, and in case of any problems, what actions are needed to ensure smooth operations.

The analysis is especially important when planning for seasons, like Christmas or Independence Day, or large promotions, like the January sales. Retailers need to understand whether the demand peaks cause problems in the supply chain, and if they do, where and when exactly. Even if it seems like everything will go smoothly, it can be useful to carry out a sensitivity analysis to understand how the supply chain will cope with small changes in demand compared to the forecast. This way retailers can maximize the sales of the season with minimal hassle.

Building a Fresh Supply Plan

A supply plan is the store delivery forecast of all goods in the store. It is built from demand forecasts at SKU-Store-Day level, and the order-delivery calendars spanning the holiday in question. The end result is a demand-, order-, delivery-, and stock-forecast that can be reviewed at Store-SKU-level or at any higher level for any day, in any unit of measure.

In fresh grocery retail, the supply plan and capacity planning normally needs to be holistic in terms of seasons, as fresh – as well as ambient – products share supply chain resources at the DC, delivery, and/or store reception stages. The supply plan is usually reviewed at different levels to ensure that the supply chain has enough capacity to fulfill the demand within the planned supply schedule.

Potential stress points include:

1. Receiving capacity at individual stores
Usually the amount of total goods / pallets arriving is key
2. DC picking capacity
Usually the number of picked delivery lines is critical
3. Transportation capacity per route
Usually pallets per route
4. DC warehousing space
The number of pallets forecast to be in stock

Smoothing Material Flows

Very often the demand during the holiday season is so high that the supply chain is too inefficient for deliveries to be strictly driven by demand or other related considerations including the need to build displays ahead of peak demand. To improve seasonal control, we have used initial seasonal purchases to smoothen material flows. In practice, it comes down to prioritising the delivery of a selected group of products. Usually the delivery is calculated on-the-fly from the estimated total volume of the season, and is used to move products with a long shelf-life to stores in advance to ensure that there’s additional capacity for fresh food during the high-demand holiday season.

What If? Understand the Limits of Your Supply Chain

Once you have a supply plan to match available capacity, it is often useful to run some sensitivity checks. What happens if you sell 10% more than the forecast? Selling more can cause issues with supply chain capacity and damage availability as a result, whereas selling less rapidly increases spoilage. Understanding your tolerance limits beforehand can significantly help mid-season when you actually see how sales develop.

The same principle applies to weather. It is good practice to understand the kinds of changes in weather that will hurt your availability or spoilage. For instance, you could simulate your supply chain by using your de-weatherised forecast against estimated sales of a hot weekend, and see where you start losing sales.

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Written by

Tommi Ylinen

Chief Product Officer