FMCG retail environment is quite turbulent as groceries and supermarkets need to tackle challenges like shifting consumer lifestyles, increasing competition and evolving channel structures. To thrive and survive, they have no choice but to optimize their work with suppliers, transform the shopping formats and focus on operational efficiencies. Having completed many projects for FMCG retailers, we have noticed certain industry challenges that could be turned in opportunities and could drive a strong competitive edge.
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FMCG business is commonly characterized as being seasonal. With demand ups and downs, it is often a problem for suppliers not to be able to provide retailers with enough quantities of the ordered products. Consequently, this drags down sales and leaves customers unhappy. Consumer demand could be hard to predict, but with the help of a specialized software solution market trends could be foreseen, hence retailers are enabled to plan orders better and manage stock efficiently.
The importance of IT systems that support supply chain is highlighted in the EY survey “Re-engineering the supply chain for the omni-channel of tomorrow”. The report states that to achieve success, grocery companies need to integrate better their IT and supply chain. FMCG retailers need to have clear sight over product development, demand planning, logistics and marketing. As a result, they must put in place technology that provides predictive analysis, stock counting, and ordering.
If retailers keep a historical record of sales and orders made by stores or warehouses, they could use the analyzed data. On the other hand, if retailers keep track of completed deliveries by supplier, they can create a list of those that could meet their changing demand.
Due to the huge amount of data and the respective analyses, a centralized business software could perform these tasks automatically. The programmed calculations are a powerful instrument that helps in minimizing shortages. In grocery retail there are several recurring actions such as replenishment, daily sales and more.
By keeping track of their specifics within an ERP system, you can calculate average parameters and gain insights on expected sales, stock levels and actions that need to be taken.
Missed discounts from suppliers
Revenue and profit are strictly connected to quantities that retailers buy from vendors. As the latter give discounts or bonuses for higher-volume purchases, margins could increase and contribute to better bottom-line results. This is a challenging task for many retailers. However, quite often they are not able to take advantage of this opportunity. But what is the reason for that? It is mainly the bad forecasting that prevents groceries and supermarkets from placing large orders to suppliers. They are unable to foresee the sales volume. Therefore, they prefer to purchase small quantities so that they do not have a stock surplus.
Another reason is that grocery retailers do not match orders with the volume needed to get a discount. Sometimes a slight increase in volume might lead to a better cost per unit from the supplier. This problem could be solved by accurate demand forecasting and better synchronization with suppliers purchase terms, both of which could be reached easily by technology. A specialized retail solution keeps track of all orders to vendors, sends alerts about available discount, notifying managers if they need to increase requested volume to get it.
Lack of flexible pricing and customer incentives
As customers keep getting more and more demanding, retailers need to be flexible in motivating them to act. Unfortunately, quite often they do not have an established pricing strategy, do not monitor their product categories for under-performance and are unable to adapt pricing to customer demand. This happens because they miss a unified view to identify areas that need urgent attention and help them build a competitive pricing strategy.
Another setback is the lack of price consistency at every customer touch point – meaning in all outlets or online stores. If there is no unified system to automatically update price changes, customers feel dissatisfied and retailers lose sales.
All in all, the most popular way to master pricing in retail is by using different types of incentives such as promotions, vouchers, loyalty programs and more. However, managing a promotion in a chain of stores could be a challenging task. It requires planning of items and respective time frame in accordance with product seasonality. Nowadays, consumers are used to getting discounts all through the year. Therefore, promotions need to be regularly introduced. However, having a huge range of products makes it difficult to select the ones to promote. ERP systems solve this problem by performing automatic revaluation of the goods` cost.
Lack of integrated planning
The problem with planning arises from lack of integration among the many software platforms retailers usually use to manage their businesses. Eventually, they end up with different sets of data about one and the same indicator. Thus, it hampers planning and execution across the entire organization. Lack of connectivity between different business units causes problems with timely planning of orders, deliveries, average daily sales, inventory, stock transfer among warehouses and stores and more.
Therefore, this problem can be solved when a retail company has “a single source of truth” about inventory levels in all stores, stock in warehouse facilities and orders to suppliers.
According to Forbes, digitalization of retail, also known as Industry 4.0 and digital transformation, moves the focus from product-centric model to customer-centric one. It means retailers need to pay attention to collecting data, turn it into insights and inspire actions. We believe this approach will help FMCG businesses providing goods to end customers solve the problems above and will drive progress in their organizations.