Ouch. OTIF regulations, decreasing product life cycles, shorter-lead times, price slashing, and increased volatility – the last couple of years have been a kick in the teeth if you’re in Fast-moving Consumer Goods (unless you’re Amazon or Walmart). Against this backdrop, it is tough to for FMCG firms to manage cash flow and increase revenue. At Castrol, we know that implementing the fundamentals in S&OP is key to navigating current market conditions.
What exactly can you do navigate these challenging times? Enter the Demand Planner as The Cost-Saving Savior.
Do You understand The Best-In-Class Practices?
It is very important to understand the best in class practices and apply them in the business effectively. For example, some companies believe in reducing overhead expenses by moving production to countries with lower cost of labor. However, they ignore the risk of longer lead-times which can wreak havoc in the supply chain. The ‘why’ factor is key to deciding the right process to be integrated.
To effectively manage the business, i.e. increasing cash flow, savings, ensuring stock availability and meeting demand, the following best practices must be well-integrated into the business:
Balancing Demand & Supply
The basics of any business is to ensure product availability whist always ensuring no over-stocking, to avoid running out of product and losing market share. One of the practices to overcome this challenge is to build forecasts at the most granular level. This means breaking down the business into channels, into distribution networks, into regions, into categories, and into stock keeping units.
Once that input is taken from the sales force and reviewed against the historical trend, marketing activities and organic growth can be plugged in to finalize the most accurate outlook. Similarly, based on the outcome of demand, supply requirements will be generated which will also be accurate. Thus, the company will have the right balance of demand and supply which has a positive impact on cashflow as the company will be optimizing the inventory which, of course, is the objective.
Remember the famous quote “you can’t control what you can’t measure”. The process doesn’t stop at balancing demand and supply – you must continuously monitor the results and fix the variances (if any). Do this after consulting the sales and marketing teams as they have the best insights into the market.
Successfully Managing Launch of New Products
The launch of any new product is again a tricky decision to make as it is totally dependent on the market reaction. Although research into new launches is sometimes done through surveys of similar products from competitors, it is an investment that the company is making, sometimes even arranging expensive launch events. Marketing plays an important role but when it comes to sourcing or production, supply chain needs to be less optimistic to avoid any impact on the inventory. This is especially true with limitations of short shelf life products. Here, the zero-based forecast is usually applied where there is no historical data available. Following the reaction to marketing efforts, decisions can be taken quickly as to whether further supply is required or not. This will save unnecessary inventory costs.
Shifting Slow-Moving Or Obsolete Inventory
Many of you will have joined companies and inherited high inventory of stocks which have been sitting in your warehouses for a long time, and now you are being measured on days or weeks of supply DOS). To mitigate this risk, an initiation of slow moving obsolete inventory (SLOB) meeting is required, which must be on-going. After reviewing the complete portfolio, a list of products that have not been moving for at least six months should be marked as SLOB to be reviewed with Sales and Marketing to come up with action plans. It can then be shared with Finance to approve some of the suggestions. It is fine to eliminate the excess non-performing inventory even if it is to be offered at cost, as liquidation will result in improving the cash flow.
These 3 areas of focus will result positively on revenue, margin, and working capital – and this can be attained with a strong process in place. S&OP is a powerful tool, but it must be integrated into the business where all cross-functional teams come together to make the best decisions.