Getting your products to your customers, at the right time, in the right condition, can have a very positive impact on your relationship with your customers. Retailers depend on suppliers to deliver great service level. Google can provide definitions, but it does not always help you understand the importance of the term or perhaps even a specific meaning in our industry. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Service level is calculated by dividing the cases you deliver, on time, in full, within spec, with the correct labelling and packaging by the number of cases ordered by your customer. Most retailers expect suppliers to deliver over 95% service level.
Why service level is so important
Sales are the #1 priority for most retailers. They need the right product at the right time to ensure they maximize their sales. Although there are +/- 35,000 SKUS in the average conventional food store, if the products shoppers want are not there, they will not buy as much or perhaps even switch stores. This is a huge problem for retailers. They believe they work very hard to get people in the store but if shoppers cannot get what they want, when they want it, they are not satisfied..
In stock position is something retailers put a lot of focus on. Next time you are in the store, walk the aisles and look at the holes on the shelves. Some retailers have small cards they put close to the price to indicate the item is out of stock.
They do this for two reasons; one to save shoppers time looking for the item and to alert their staff to order more as soon as possible. When I was at Loblaw, we would measure the number of holes in each store to assess in stock position. I can remember some conversations at very senior levels about why certain suppliers seem to be out of stock more than others.
Walmart have an expectation for suppliers they call On Time In Full. This is their straightforward approach to service level. They expect suppliers to deliver all of their orders on time and in full. They measure lost sales and if you are a supplier that has problems delivering on time and in full they will explain to you how many sales both companies have lost as a result of the poor service level.
We know the pandemic has caused more challenges than ever to get products produced. Shortages on ingredients, packaging and other inputs have been more prevalent than ever and labour to produce products is difficult to maintain. The pandemic has also put more focus on in-stock position too. Prior to the pandemic consumers might trade to a different item or not be too concerned if they had to stop at a second store to finish their order. During the pandemic people wanted to get in and out of stores as quickly as possible and get as many of the items on their list as they could find. They would switch stores if they believed the other store had a better in-stock position. For some shoppers this might have eclipsed price as a reason to select a store. This will subside as restrictions are lifted and people feel more comfortable being in stores but it will not decrease the importance of being in-stock.
It takes a lot of coordination to operate a 40,000 sq ft grocery store. Labour is challenging for retailers as well so when they plan to invest the hours to build displays or change to a new ad week if the inventory is not there it is a problem. Likely they have planned to feature the items when they have the best chance of selling so if they arrive a week late the window might be over and then what do they do with the product?
Why suppliers should be focused on service level
Service level can enhance your relationship with your customers, grow your sales and bring new opportunities. Those are three compelling reasons to focus on this in your business.
To ensure you understand your customer’s expectations ask the what the target is for service level. Obviously, they want 100% but they will likely give you a number slightly less than that, based on history in the category. Once you know the target share your results with them periodically. Depending on your sales this might be monthly or quarterly. Retailers will focus on the problems so there is nothing wrong with reminding them you were 97% service level in the quarter. If you had to get over a number of hurdles to get them the product let them know.
In a time when some suppliers are challenged to get products produced and delivered, you can grow your sales if you have a good in-stock position. Consumers will trade from product to product if they see comparable value. It is beneficial to spend time in stores to assess the in-stock position of other suppliers in your category. If you see they have problems you might suggest to your customers they increase orders slightly to fill the void. You want to maintain your good service level and understand if orders might increase.
Category managers will often find opportunities for suppliers who meet or exceed service level targets. They do not appreciate the operations group or their bosses complaining to them when suppliers short orders for ads or theme displays. Within the retailer, they wear the service level issues.
Retailers measure service level into their warehouse or store for direct store distribution (DSD) items. If you have over and above activity like ads, in-store specials or themes it is always good to visit stores to ensure the inventory makes it through the system. Yes they will measure service level at the warehouse but if your product does not make it through the system any help you can provide is usually appreciated.
Remember your customers will also visit their competition. If they see your product in-stock there but orders shorted to them they will not be happy. Regardless of the reason, they will assume you provided product to their competitor.
Be as proactive as possible. If you are going to have an issue let your customer know and also how the situation can be resolved.
Although Staples are not a food store, they are a retailer. You can see how much they want to keep consumer shopping with them. If the item is out of stock, they will ship it for free. That is an real investment in keeping shoppers loyal to Staples.
If you have any questions or require help with service, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
FCC 2022 food report is an important resource
This week FCC released their 2022 food report. This is a great source of information for producers and processors. You can see our entire food and beverage industry. It is always important to understand how your products are performing vs. the total industry and within categories or departments. You can use some of this information when talking to your customers.
How the pandemic is shaping the future of the food industry
I had the opportunity to deliver a session for Perennia in N.S. about the future of our industry. It was a challenge because they asked me to go back to a report I had created in 2020 (prior to the pandemic) about trends. Believe it or not many of them are still important today. The pandemic accelerated some and created some new issues as well. Check out the recording here:
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