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The 5 Vital Supply Chain Lessons for Food and Drug Retailers

Sep 20, 2017 3 min

The recently released State of the Retail Supply Chain report is based on Martec International’s annual survey of some of the largest retailers across Europe. While the overall report covers a wide spectrum of retailers, here are the main findings based on the 29 food and drug retailers interviewed. These include supermarkets, cash and carry, convenience stores, chemists and drug stores.

1) Food and drug retailers struggle with promotions but not with new products

Forecasting more effectively for promotions and promotional lift is the biggest challenge as highlighted by all retailers. However, food and drug retailers struggle less with forecasting for new products than other retailers, most likely because food and drug retailers typically already have an equivalent product to base forecasts on. Adopting more advanced models instead of typical Min/Max or “sell one get one” models would help produce more accurate forecasts for each product at each location based on its profile and planned promotions.

2) Space data needs to be incorporated to forecasting and replenishment

Food and drug retailers are more satisfied than the average retailer with the use of space data (such as minimum display requirements and changes in the amount of space available in individual stores) in forecast and replenishment processes. The higher satisfaction is an indication that food and retailers are more likely to already be using planogramming systems than other retailers and thus integrating space considerations to their processes. However, the overall satisfaction remains low (5.2/10) so there’s quite obviously space (pun intended) to improve the use of planograms.

3) The use of external data sources craves automation

Food and drug retailers rate themselves slightly above average (4.6 vs. 4.3/10) in the use of external data sources (such as weather or competitor data or even social media sentiment analysis) but still fall well behind home shopping retailers (5.4/10). Most of the current solutions used for forecasting and replenishment are not able to automatically include such data, so manual adjustment is used. As one Replenishment and IT Development Manager put it: “We will just look at the weather forecast and, it’s not connected but we use it.”

If you are curious about the benefits of integrating weather data into your forecasting and replenishment, our Fresh Food forecasting and replenishment ebook covers the topic in more detail.

4) Supply chain visibility is still low

When asked to rank the visibility of their supply chain, food and drug retailers rated themselves the lowest (5.9 vs an average of 6.2). However, cross-comparison between different retail segments is difficult as for example home shopping retailers without physical stores ranked their visibility significantly higher (8.2) having no stores to worry about.

Food and drug supply chains are typically shorter and thus more visible, but where food retailers struggle is the visibility into their suppliers yet 100% availability is usually assumed. Retailers should thus push their suppliers into adopting more modern software that makes realistic stock levels visible.

5) Food and drug retailers are efficient replenishers and forecasters

Food and drug retailers are efficient in replenishment and forecasting (as measured by dividing their sales with Full Time Equivalent employees working in replenishment and forecasting), with a single FTE being responsible for €97.5 million worth of products, compared with an industry average of €80.9 million. This is probably due to the lower margins of food retailers as well as their larger average company size pushing them to achieve greater efficiencies.

We hope this sneak peek into the study, was beneficial and highly recommend that you download the full report to see the big picture with plenty more insights into the retail business.

Written by

Maiju Heino

Former Commercial Product Manager, Grocery Retail