Value Realization Supply Chain Challenges in Moving to Store Level Category Management

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Value Realization-Supply Chain Challenges in
Moving toStore Level Category Management

• Keith M Scovell CPG Industry Manager, Infosys
  Technologies
• 214-952-8844

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Agenda

• Why - Store-Level Category Management (SLCM)
• The Value Realization Framework and SLCM
• Suggested Approach

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What is Store-Level Category Management?
Store-Level Category Management (SLCM) is a
business process intended to maximize sales of a
multi-brand set of closely related products
through the development and implementation of
marketing and execution plans tailored to meet
shopper requirements at each specific retailer
location/point of sale
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What is the Goal of SLCM?
Forecast Sales
Out of Stock
Overstock- Spoilage risk
Forecast Sales
Out of Stock
Overstock- Spoilage risk
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What is Driving CPG Companies Towards SLCM?

• Achieving sales growth in todays market means
  nothing can be left on the table
• Retailer consolidation is putting more pressure
  on CPG companies to increase promotional spending
  and retailer profitability
• Sales at traditional grocery stores are declining
  while new formats (Mass, Club, Drug, C-Store and
  Dollar) are growing rapidly, forcing companies to
  rethink and segment their strategies, trade
  promotions and operations
• The proliferation of new products is squeezing
  shelf space, making shelf efficiency crucial to
  success
• Access to POS data is increasing and RFID data is
  emerging, driving CPG companies to seek
  competitive advantage through its use
• The expansion of private label products into new
  categories and increased acceptance among
  consumers is making brand performance on the
  shelf more critical
• Fragmentation of the mass market combined with
  channel proliferation and the recognition that
  consumers in different stores/channels behave
  differently is driving CPG companies to a finer
  level of detail in planning
• Growing interest in scan-based trading among
  retailers will make inventory an even less
  acceptable method of covering up process
  inefficiencies

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The Key Elements of SLCM Focus on Two Critical
Areas
Product
What is the right product assortment at
each point of sale? Is target/promotional
pricing adhered to? Is the price appropriate vs.
competitors/private label? Are there enough
facings for the product? Is secondary placement
achieved during promotions? Are the promotional
plans appropriate for this retailer? Are
feature/display efficient at this location?
Price
Marketing
Place
Promotion
What are the key elements of SLCM?
Planning
What sales are expected of each SKU each
week? What is the expected lift in velocity at
each store for each type of promotion? Are
orders appropriately sized given expected
sales? Are orders generated with sufficient lead
time to ensure delivery to the store before a
stockout? Can the correct amount of each product
be produced in sufficient lead time to deliver
product to the customer? Can additional supply be
produced to cover stockouts? Is the ordered
quantity delivered to the customer in time? Is
the appropriate quantity delivered to the
customer store and placed on shelf in sufficient
time?
Order Processing
Execution
Production
Delivery
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Tools are Beginning to Evolve to Provide the
Required Data Inputs to SLCM

• Data is starting to become available from
  multiple sources which will begin to make it
  possible to understand what is actually occurring
  at the store level
• Wal-Marts RetailLink, Targets Partners Online
  and K-Marts Workbench
• IRIs Retail Performance Management -
  MarketKnowledge
• ACNielsen Retail Measurement Services In-Store
  Observations
• Creation of owned store-level audit/merchandising
  teams PG
• Improved tools for DSD merchandisers Real Time
  Data / SAP
• Third-party merchandising services Acosta,
  Crossmark, Sales Advantage
• DC-level RFID data is emerging, with store-level
  data a possibility in the future

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What is the SLCM Opportunity?

• Reduce stockouts by 50, 70 faster time to
  market, increase perfect order performance 17
• AMR
• Reduced fulfillment times to retail DC from 38 to
  16 days, improved turns 11
• Procter Gamble
• Five percent increase in market capitalization
• Information Resources, Inc.

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Realizing Value Through SLCM
Value Realization Approach Attributes
VRM Results

• Projects are aligned with business expectations
• Total cost of ownership is reduced due to
  seamless transition after go-live and minimal
  re-work
• Enhanced success due to measurable business
  benefits

• Link business strategies and goals to specific
  changes in business processes to drive
  measurable, tangible improvement in process
  metrics
• Identify and detail root causes of process
  failures and prioritize their importance
• Define and design business processes to deliver
  targeted process metrics, thereby developing a
  solution that delivers results and value
• Simulate process change with users and subject
  matter experts to ensure practicality of process
  and solution design
• Incorporate continuous business process
  improvement philosophy in the minds of the
  project team and users through organizational
  readiness preparation and training
• Focus dedicated resources on organization and
  people readiness for the new solution

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A CPG Companys Ability to Reap the Full Benefits
of SLCM Depend Partly on its Business Model
DSD Model- Control
CPG Production
CPG Warehouse
Route Truck
Retail Store
Warehouse Model- Collaborate
CPG Production
CPG Warehouse
Retail Store
Delivery Truck
Customer Warehouse
Broker/Dealer Model- Recommend
CPG Production
CPG Warehouse
Delivery Truck
Broker/Dealer Warehouse
Delivery Truck
Retail Store
The closer a company can get to the store shelf,
the greater its ability to impact performance The
key question for DC-delivery companies is How
can we leverage data and our relationships to
achieve the on-shelf performance of DSD
companies?
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Partly on its Product Characteristics

• Demand is stable and driven by consumption/spoilag
  e
• Low promotional/seasonal impact
• Staple dairy, produce, bakery items
• Goal is to improve store-shelf availability while
  minimizing inventory/spoilage

• Demand is highly variable, with limited pantry
  loading
• High promotional/seasonal impact
• Branded juice, dairy, produce
• Goal is to maximize store-shelf availability
  during promotions while minimizing spoilage

High
Perishability

• Demand stable and driven by consumption
• Low promotional/seasonal impact
• Staple household goods/shelf-stable food
• Goal is to improve store-shelf availability at
  lowest delivery cost

• Demand is highly variable, with heavy pantry
  loading
• High promotional/seasonal impact
• Cereals, cookies, salty snacks
• Goal is to maximize store-shelf availability
  during promotions at lowest delivery cost

Low
High
Low
-Typically DSD
Demand Volatility
-Typically warehouse delivery
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Partly on the Channel

• Key Questions to be Answered
• What is our access to our target consumer at the
  customers store locations?
• What will motivate our target consumer at the
  customers store location to make a purchase
  decision?
• How can we make our target consumer aware of our
  product at the customers store location?
• How can our customers stores be segmented?
• How do we tailor our product offerings to each of
  our customers store locations?
• What volume of product do we expect to sell each
  week at each of our customers store locations?
• When do we have to have orders finalized to
  ensure delivery to the customer locations before
  an out of stock situation occurs?

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and Partly on the Ability to Access and
Integrate Real-time Data
RFID Case Data
POS data
RFID Case Data
VMI Data
Internal supply chain data
Can case-level RFID data be married with POS data
to measure shelf availability?
Can DC inventory data be married to store-level
data to measure customer internal delivery
performance?
Can internal data be married with customer data
to drive supply chain efficiencies while
improving store-shelf availability?
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Defining Process Metrics Out of Stock Example
-ILLUSTRATIVE-

• Business Goals

• Business Process

Key Metrics

• Ensure on-shelf availability of the companys
  products at the store level

• Planning
• Order Processing
• Production
• Delivery

• Store-level forecast accuracy- mean absolute
  percent error of forecast vs. actual sales, by
  store
• Non-promoted
• Promoted (by promotion type)
• Order compliance - Percentage of error-free
  orders placed within established leadtime
• Stock availability- Percentage of days when
  product is on-hand at target levels
• DC on-time order-fill -Percentage of orders
  shipped to the customer DC by the agreed delivery
  time with the correct quantities of each line
  item
• Store on-time order fill - Percentage of orders
  shipped from the retailer DC to the retail store
  by the agreed delivery time with the correct
  quantities of each line item
• Avoidable shelf out-of-stock - Percentage of
  days a shelf stockout occurs while product is
  available at the store level

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To Achieve These Metrics, Companies Will Have to
Closely Analyze Business Processes
Shelf OOS Detected
Order Generated
Physical Stock Available at Cust. DC
Physical Stock Available at Store
Process Failure Order Generation
No
No
No
Yes
Yes
Yes
Due Date Passed
Process Failure Sales Operations Planning
Process Failure Shelf Replenishment
No
Process Failure Store Replenishment
Yes
Physical Stock Available at Mfr DC
Process Failure Production/ DC Replenishment
No
Yes
Process Failure Customer Replenishment
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and Drive Towards True Understanding of the Root
Causes of Process Failures
-ILLUSTRATIVE-
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Process Failures Need to be Categorized, to
Determine Which Have the Greatest Potential Impact
-ILLUSTRATIVE-

• Store-level promotional forecast error
• Recent FD at Big Foods exceeded expected lift at
  65 of customer stores
• March feature at top 20 stores at Huge Grocer 50
  above forecast, bottom 20- 30 below forecast
• February FSI redemptions on target 1.5 overall,
  but very heavy (3) at Walco and Bullseye,
  especially in exurbs
• Adjust store-level forecasting models
  accordingly, and update suggested order
  quantities
• Insufficient shelf space at store
• Intraday out-of-stocks observed on Top 3 SKUs at
  Tiger Foods 14 of time, especially urban
  locations- need to selectively add facings
• Higher than expected demand at Daves Club no
  additional space available, working with customer
  to move to twice-weekly store replenishment
• Gem Markets reduced facings in recent Planogram
  OOS have increased from 7.1 to 12.5. Working
  with customer to restore facings in highest
  velocity locations

Other
Store-level Promotional Forecast error
Store-level Base forecast error
Customer DC Delivery late
Customer DC Delivery pick errors
Insufficient Shelf space At store
Store-level Delivery pick errors
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Potential Process Changes Are Prioritized Based
on the Expected Business Value and the Ease of
Implementation
START
High
SAMPLE
Business Value
Low
Low
High
Ease Of Implementation
This approach focuses investments on those
application simplifications that deliver the most
bang for the buck
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What Actions Should IS/LD Leaders Be Taking Today
to Prepare for SLCM?
Determine key Information gaps
Identify and define existing processes
Evaluate your organizations performance and
opportunity
Key Questions

• What metrics should we use to evaluate our
  companys performance? Are they aligned with
  customer service expectations?
• What is our current performance?
• Out of stocks
• Promotion effectiveness
• Inventory
• What can SLCM be worth to my company?
• Top-line growth
• SC cost impact
• Investment required

• How is the supply chain segmented today?
• What are the unique processes established to
  address specific segments?
• What are the key pain points in the existing
  model?
• Internal
• External

• What are the datasets that will need to be
  incorporated into our SOP process?
• What system tools will be required to facilitate
  SLCM?
• What future capabilities need to be planned for
  (e.g., RFID)?

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As You Consider the Role SLCM Can Play at Your
Company, Look for These Upcoming Articles from
Infosys

• Aligning fulfillment metrics to customer segment
  requirements,
• by Subramanyam Venkataraman
• Scheduled to appear in Demand and Supply Chain
  Executive, May 2005
• Customizing APS applications for the repetitive
  batch processing industry,
• by Subramanyam Venkataraman, Nishant Thusoo and
  Badri Narayanan
• Scheduled to appear in the symposium proceedings,
  10th International Symposium on Logistics in
  Lisbon, May 2005

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Thank You !