• Miebach India

What keeps you from delivering a fresh product to the market?

There are few things more off-putting than opening a packet of chip longingly, and smelling a waft of oil. Clearly, the product has been lying around on shelf too long, even if you just bought it today. It has spent days in the plant, in the distribution center,  on road and then in your local mom and pop store. (It would seem that its velocity was highest only in one supply chain node – your home)

The importance of freshness is not just limited to the food industry. It  extends to a commodity product like cement or paint. An apparel piece lying folded too long is overlooked by the costumer. A technology product which takes 3-4 months to reach the market has already lost half time from its product lifetime. So Freshness is certainly not an attribute that supply chains can ignore, no matter which industry.

What makes is so hard to deliver a fresh product? It is usually a series of small roadblocks at many stages of the chain. Let us look at the FMCG supply chain for some of these roadblocks:

At the production stage, plants often run large batch sizes to minimize changeovers. So a product which gets only one run during the month, has already added ~30 days between its supply and demand cycle. On top of this, if you wait to consolidate your transport loads, you typically end up adding 3-4 days more to the product’s age.

In order to support a batch plan, companies often run on monthly planning frequency. This means that any adjustments based on market trends will happen only in the next month. Moreover, the high number of SKUs makes these plans vulnerable to high forecast errors. If you want to meet the demand variability contributed by long planning horizon and inaccurate forecasts, the logical answer is building up inventory. If companies were able to ensure that inventory follows a FIFO (First-in first-out) throughout the chain, then the impact of this build-up on freshness could be managed. However, most planning systems are not implemented with a batch control on inventory (except Pharma, where batch control is a strict legal requirement), and hence older stock often lies around at different DCs for a while before it reaches the retail store.

In India particularly, FMCG is  plagued by two specific factors. One is the very long supply chain, which has stayed on more for legacy issues than by design. Products go through Regional DCs, State DCs, city go-downs and distributors before it reaches the retailer. Some companies are making an active effort to cut down some of these nodes – particularly between distributor and retailer. Distributors are now used mainly for higher reach and financial transactions, while little product movement happens through them. Ofcourse, even if the product spends 4-5 days at each node (and this is a very optimist estimate), it is an addition of at least 20 days to its age. Which brings us to the second factor pertinent to India – long transportation lead times. Due to poor road infrastructure and lower transport availability, the time between nodes itself could sometime add up to 10 days.

One more factor is the lack of last mile discipline: Typically companies have a fixed schedule to service the distributors. Most of the companies work on the continuous replenishment concept supplying the distributors as per the forecast and the inventory norms. Companies resort to a lot of manual intervention in replenishing the distributors due to reasons like irregular supplies from factories, credit availability, forecast correction etc. Manual intervention consumes considerable amount of time from the sales team and also corrupts the data history, contributing further to poor forecasting accuracy.

Some of these levers are equally relevant to other industries – for e.g. high number of SKUs, poor forecast accuracy, long planning lead times and long distribution networks. Technology companies are trying to shorten their supply chains to move closer to consumers so that they can make most of the product lifecycle. Apparel companies are postponing production and planning at a higher level so that their planning could improve. Of course Batch sizing is a bigger giant which is yet to be tamed, though many companies have moved to substantially smaller lots by optimizing scheduling through capable software.

So next time you review your supply chain lead times – do wonder if you will be happy to receive a packet of chips that old – even if it is far from expiry. And then critically look at how you can deliver a crisp  pack.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: