Winning on all fronts: Sales, Costs and Inventories

Transcription

1 Shelf Availability Winning on all fronts: Sales, Costs and Inventories ECR - The Future Supply Chain Workshop Prague, March 30 th, 2012

2 Agenda Shelf availability: the case for a paradigm shift A turnaround case A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 2

3 Shelf availability: the case for a paradigm shift A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 3

4 Shelf availability: the case for a paradigm shift Supply chains are traditionally not structured nor managed to ensure product availability for the prospects / clients Manufacturers & Retailers face the following challenges Products "do not sell" Assortments are not deployed to the shelves no matter the product category, store format, country, channel etc. Performance is measured most often on service level outbound the warehouses and inventory levels very seldom at stock-outs on shelves (OSA) almost never on assortment deployment These characteristics are universal to the modern trade A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 4

5 Sales rate (weekly average unit sales by store where present) Shelf availability: the case for a paradigm shift The retail dilemma: products "do not sell" and assortments are not deployed to the stores Distribution matrix per reference (Week w, Year y, store penetration, weekly sales) A leading consumer goods company at a leading US retailer High Low 1,80 1,60 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Low Products with strong selling potential under-exposed Products useful to complete ranges in larger stores? Top sellers listed in most stores Products possibly over-exposed Store penetration (% of stores listing the reference) High Top Sellers are distributed in almost all stores and, therefore, justify by this rotation level their high distribution rate Though, the majority of SKUs distributed in most stores do not enjoy a higher rotation than SKUs distributed in much less stores Some SKUs enjoy a very high rotation while they are distributed in a very limited number of stores It raises questions regarding the rationale why some SKUs have been prioritized vs. others As a consequence, it is key to maximize the breadth of the offer, i.e. the number of items to which the opportunity to be sold is given A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 5

6 Sales rate (daily average unit sales by store where present) Sales rate (daily average unit sales by store where present) Shelf availability: the case for a paradigm shift in most product segments Distribution matrix per reference A major perfumes and cosmetics company at a leading Spanish retailer Selection A leading FMCG company distributing in dozens of thousands of POS Store penetration (% of stores listing the reference) Store penetration (% of stores listing the reference) A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 6

7 Sales rate (weekly average unit sales by store where present) Shelf availability: the case for a paradigm shift in most product segments (cont d) Distribution matrix per reference (Week w, Year y, store penetration, weekly sales) A large DIY retailer distributing 10,000s SKUs in 1,000s POS 11% SKUs 9% SKUs 1 Average: % SKUs 45% SKUs 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Store penetration (% of stores listing the reference) A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 7

8 Sales rate (weekly average unit sales by store where present) Shelf availability: the case for a paradigm shift in most product segments (cont d) Distribution matrix per reference (Week w, Year y, store penetration, weekly sales) A pharmacy chain delivering 1,000s SKUs in 500 POS 1% SKUs 18% SKUs 52% SKUs 29% SKUs Average: 0,20 Store penetration (% of stores listing the reference) A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 8

9 Average monthly sales (units) Average monthly sales (units) Average monthly sales (units) Average monthly sales (units) Shelf availability: the case for a paradigm shift and especially for durable goods Distribution matrix per reference A leading European retailer Selection Espresso machines 3,0 Iron 32 1,5 1,0 0,5 0, Store penetration Vacuum cleaners Store penetration TV sets Store penetration Store penetration A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 9

10 Shelf availability: the case for a paradigm shift Wider assortment deployment usually faces 3 objections 1 " Full deployment of assortment in the POS increases inventories" 2 "Buying patterns depend on the POS" 3 "Shelf space is limited" A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 10

11 Shelf availability: the case for a paradigm shift 1 when higher availability does not have to translate into higher inventories Inventory level by reference x POS (zoom on 9 SKUs and 20 POS) (Week 22, number of items stored by POS) Point of Sales Grand Total SAN ANTONIO, TX PHOENIX, AZ SAN DIEGO, CA - EF CHARLOTTE, NC TALLAHASSEE (WEST), FL TAMPA, FL NORTH LITTLE ROCK, AR KAILUAKONA, HI GAINESVILLE, FL (SW) HATILLO, PR LAS VEGAS, NV AUSTIN, TX FORT WAYNE (S), IN NILES, IL - EF GARLAND, TX MARYVILLE, TN NORTH LAS VEGAS, NV SAGINAW, MI KAHULUI, HI - EF LIMA, OH WICHITA FALLS, TX A leading consumer goods company at a leading US retailer High stock assortment: very high global stock without full product range availability Poor availability assortment: low product availability with relatively high global stock Optimized assortment: high product availability with low global stock A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 11

12 Sales rate (weekly average unit sales by store where present) Shelf availability: the case for a paradigm shift 2 and low sales level makes differentiated allocation of products to POS illusive Distribution matrix per reference (Week w, Year y, store penetration, weekly sales) A leading consumer goods company at a leading US retailer High Low 1,80 1,60 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Low Low presence in stores not due to absence at DC. E.g. some products in 82% of the regional DCs and only 13% of the stores Store penetration (% of stores listing the reference) High Assessing a priori that a given product will sell in a retail outlet and not in another is difficult when the average sale is in tenth of unit per week in supermarkets welcoming every day thousands of shoppers, with very different profiles, especially since it is sufficient that one of these shoppers perhaps unusual in the population of the area bought a copy to make this item a best seller locally! In the current example, the 1000s of POS are delivered from some fifty regional warehouses; the 2 products circled in the figure are present in more than 80% of the regional warehouses. It is therefore considered that the specific consumption is not related to the region (East coast vs. West coast for example) but is finer, which is very unlikely. But above all, it is impossible to determine objectively a priori. While it is possible to ascertain in retrospect that a product that was thought legitimate for all the shops sells very little (bottom left quadrant in figure), it is unlikely to explain a priori and in a solid way that it should be deployed throughout the country the US here but only in some cities in Florida and Nevada. A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 12

13 Shelf availability: the case for a paradigm shift 3 POS observation confirms potential for wider assortment deployment Select leading brands / retailers A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 13

14 Shelf availability: the case for a paradigm shift 3 POS observation confirms potential for wider assortment deployment (cont d) Select leading brands / retailers A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 14

15 Shelf availability: the case for a paradigm shift 3 and shortage reduction A leading perfumes and cosmetics distributor in the flagship of a leading retailer A leading retailer A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 15

16 Shelf availability: the case for a paradigm shift 3 in all segments Leading retailers A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 16

17 Shelf availability: the case for a paradigm shift 3 in all segments (cont'd) Leading retailers A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 17

18 Cumulative sales Shelf availability: the case for a paradigm shift Traditional dashboards do not allow to track assortment deployment anomalies Sales Pareto A leading consumer goods company at a leading US retailer 1,80 Distribution matrix 1,60 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% A-Class: 25% SKUs 50% sales B-Class/ 40% SKUs 40% sales C-Class: 35% SKUs 10% sales SKUs These products have been identified a priori as not deserving to be offered everywhere They are offered in only 10% of outlets Their strong local sales when they are present do not compensate for their low numerical distribution Therefore they appear in the C-class i.e. as products not deserving to be deployed everywhere, and the vicious circle is closed! A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 18

19 Shelf availability: the case for a paradigm shift Assortment deployment calls for a paradigm shift Usual paradigm It is possible to forecast future sales per POS Paradigm for slow-runners It is impossible to forecast future sales per POS Assortment choices are driven by perception of clients expectations Offer in store drives sales Production / purchasing is the sum of the perceived clients expectations Production / purchasing reflects sales objectives Products are ordered by the stores based on their anticipation of sales Some flexibility is built in via the retention of some quantities in a central inventory This is an example of a Products are sold because clients expectations were well anticipated Products are pushed towards the stores in minimum quantities Flexibility is key and calls for a significant retention of production in a central inventory Products are sold because items were well displayed and promoted in the stores A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 19

20 Shelf availability: the case for a paradigm shift Such a paradigm shift has delivered significant revenue increase through optimal Shelf Availability Benefits of the new Shelf Presence paradigm Significant and sustainable impact : Incremental sales, most often over +5% At no cost increase Without inventory increase Even with a reduction of management workload have been obtained in diverse distribution settings The results in terms of sales uplift and inventory reduction have been obtained in various settings : Diverse product categories and assortment sizes (from dozens to thousands) In own as well as indirect channels In different countries During normal or promotional periods No matter whether sales are assisted or not No matter whether experiment led by retailer or manufacturer The only common criteria is that the unit sales per SKU per POS are small per day/week A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 20

21 Shelf availability: the case for a paradigm shift Such a paradigm shift has delivered significant revenue increase through optimal Shelf Availability (cont'd) Illustration on a high-tech category over 1000s of POS Illustration at a leading building material and equipment retailer with 1000 POS Company 1 Company 2 Company 3 Country Incremental sales +8% +8 to 10% in own shops, +7% at dealers +3% >+15%, at indirect dealers +9%, with reduction of inventory at POS >+6% on first 2 pilots, with 40% inventory reduction Application of new concept has delivered : A 35% assortment increase Delivering a 15% sales uplift Without increasing costs And actually reducing inventories In a sustainable way New insights for category management have been provided as well as for promotions management Note: all these companies are leaders (or among leaders) in their respective markets A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 21

22 A turnaround case A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 22

23 A turnaround case Client example: KPIs are developed to track impact Product availability Point of sales 1 2 Product Daily sales Inventory at Closure of Business Straightforward, unambiguous Conservative, since does not consider products unavailable in the morning Contributing to stock-out rate A B C D A B C D 0 0 Total = stock-out rate = KPI 1 Sales uplift Relative weight of pilot POS vs. reference region % KPI 2 = Sales uplift Start of new practices in pilot POS Days + X % Straightforward, unambiguous Secure, since removes bias due to catalog changes, pricing, etc. Source: A.T. Kearney A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 23

24 A turnaround case Client example: In the pilot Points of Sales, assortment has been increased by 35%, without increasing inventories Evolution of assortment and inventories for the pilot POS (# of listed SKU x POS; inventory value; daily data) # of listed SKU x POS Start of implementation in pilot POS Pilot start Client example Inventory value ( ) % Inventories Days A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 24

25 A turnaround case Client example: for category 1, sales have increased by15%, when inventories have increased by 2% Client example Relative weight of sales in pilot POS vs. other POS of the region (% turnover; pilot POS vs. other POS; daily data) Evolution of inventories (k ; pilot POS; daily data) New assortment Initial assortment 44% 42% 40% 38% 36% 34% 32% 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Start of implementation in pilot POS Average before: 26.2% Days Pilot start Average after: 30.0% +15% Pilot start - 17% +19% Inventories Days A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 25

26 A turnaround case Client example: the results for categories 2 and 3 are even more favourable Relative weight of sales in pilot POS vs other POS of the region (% turnover; pilot POS vs. other POS; daily data) Category 1 Category 2 Client example Start of implementation 55% in pilot POS 50% 45% Pilot start Start of implementation 55% in pilot POS 50% Average before: 22.6% 45% Pilot start Average after: 26.2% 40% 40% 35% 35% 30% 30% 25% 20% +20% 25% 20% +16% 15% 15% 10% 10% 5% 0% Average before: 21.6% Days Average after: 25.8% 5% 0% Days Impact on inventories: -8% Impact on inventories: -21% A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 26

27 % of turnover A turnaround case Client example: Below some threshold quantity, the assortment does not seem to be credible % ot POS turnover as a function of number of SKUs listed in the POS for a given category (# of references, % of turnover) 5 Client example # References A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 27

28 A turnaround case A.T. Kearney s experience in the topic has now been the broadcasted in various high caliber forums Articles and executive presentations Client testimonies in videos Not only did we reduce costs, but we increased our sales by hundreds of millions of Euros. It is very simple: this is our new way of working Source: Video extract of the CEO addressing the financial community during an Investors day Ability to raise thinking to a strategic level, while pragmatically driving a transformation program A.T. Kearney was able to mesh itself seamlessly into our teams Source: Video extract of the Sales and Distribution VP, formerly Supply chain VP A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 28

29 A turnaround case including in recent months No shortage: some breakthroughs in non-food as well Source: Supply Chain Magazine November 2011 A.T. Kearney 18/ECR Conference/Prague/LC/ag/08 29