We know in stock position is a big issue right now in the food and beverage industry. Many retailers use sophisticated systems to operate their business. For most of the large retailers auto replenishment is an important tool to ensure their stores are stocked with the right amount of inventory. Google and dictionaries can provide definitions, but they do 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.
Auto replenishment is a component within a retailer’s information technology that automatically re-orders product for a store, when inventory goes below a predetermined level, on the shelf. The re-order points are set in advance, based on sales estimates and holding capacity on the shelf. The system will order the amount of product required to fill the shelf and meet the sales estimates.
Auto replenishment is great, when it works
Systems are great, they can save a lot of labour costs and time to get things done. As we read about self-driving cars and other marvels of technology, more and more decisions are being made by systems. Auto replenishment is not a complicated concept. The sales of a product trigger the re-order from the warehouse to fill the shelf and meet the expected demand.
Unfortunately, there are many factors that can throw a curve ball at auto replenishment. One of the most obvious is consumers. They do not always behave the way we expect them to. Most auto replenishment relies on history to develop the sales estimates. It starts with a number created by a person, but the sales history is then used to ‘improve’ the sales estimate. Events like snowstorms or shifting holiday dates can cause sales history to be inaccurate as a tool to predict the future. Panic buying during the pandemic was a huge issue for retailers because the sales history they had was not realistic. It caused a lot of challenges for them to figure out what and when to buy.
We know the food and beverage industry sales can be driven by temporary price reductions (TPR’s). If these fluctuations are not flagged in the system, they will have a significant impact on sales projections. Most retailer’s systems allow them to eliminate promotion sales from the estimates. They really need to develop an accurate baseline sales number.
Errors at the front end can impact auto replenishment. If an item does not scan properly, it will not get captured in the system. The auto replenishment has no idea the item was purchased so it does not count that unit into the equation of when to re-order. This is one reason it is so important items scan properly.
Where is auto replenishment used?
It is most common to find this in place in the grocery department. Shelf life is longer and most stores use plan o grams so they know the amount of product required to fill the shelf.
Some fresh departments will use this, often in stores with more sophisticated buying systems. Walmart would be an example where their systems do a lot of the ordering for stores.
Store employees do have the ability to override the system but it usually only happens once the product is out of stock. They are not able to really react when the system orders 2 cases and should have ordered 4.
What suppliers need to do about auto replenishment
It is always a good question to ask your customers.
“How will stores replenish our products from the warehouse?”
If the answer is your product is on auto replenishment or auto re-order then you know the system will be ordering the inventory. There is a huge focus on in stock position right now as suppliers and retailers struggle to get inventory and keep shelves full. There are many reasons for out of stocks. Given all the challenges it does not make sense to be out of stock and lose sales, because the system did not order properly.
Suppliers need to visit stores and check for in stock position. If you see holes on the shelf where your product should be there is a problem. The first thing is to check with your own business to ensure you did not short orders into the warehouse. Once you are satisfied you have fulfilled orders it is time to figure out what is happening.
Most stores have a person responsible for the inventory management in the store. They are the person with the ability to override the system to order product. It is beneficial to talk to them and see what is happening. They can usually tell you the re-order point and the sales estimates. Check to see if these make sense to you. If they do not then try to understand how they got to these numbers and see if you can get them to change them. Too much inventory is not good for anyone so retailers will always try to be as close to just in time as possible.
If they are ordering and your product is not getting to the store there could be an issue somewhere in the supply chain. For this issue you will have to go back to your contacts in the merchandising department. Assistant category managers are usually the best people for these types of issues. There are many reasons for a problem but they can usually get to the solution for you.
In stock position is everyone’s responsibility
It is true retailers take possession of your product when they receive it in their warehouse. My advice would be to follow it right through the front end. You and your customers need sales and this is only recorded in their mind when it scans correctly. Check your in-stock position regularly in a variety of stores. If there is a hole where your product should be there is a reason. Do everything you can to figure out why and get the product back on the shelf. It is tough enough to deliver sales but when the system is not re-ordering properly you will never get there.
If you have any questions or require help working with auto replenishment, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
KD ice cream??
I find it interesting a company like Kraft Heinz see Kraft Dinner ice cream and Oscar Mayer Bologna face masks as innovative?? The article says they have an entire group dedicated to product innovation and this is what they introduce to the market?
I agree KD is a high volume item but there are reasons for that. Not sure replicating the flavour in ice cream is the next thing we need in grocery stores.
Interested in your opinion as to whether you see this as innovation and the direction our industry should be going. It is on the shelf but perhaps that is because they paid for it to be there…
Reusables in B.C. stores
Packaging continues to get a lot of attention in the industry.
Check out this company that recently launched programs with IGA and Fresh St Market in Vancouver. It will be interesting to see how many consumers are willing to do their part in this.
When is Peter speaking?
Learnsphere Supply chain 1-2-3 Food & Beverage Manitoba
Sell successfully to retail- May-June
Foodpreneur Program
London, Ontario - May 24
Association of Municipal Administrators of NS- Jun 16
With the Kilted Chef
To help promote the Atlantic Canadian companies participating in SIAL I had the opportunity to create some videos with Alain Bosse, the Kilted Chef. We had a great time putting the videos together and they should be a valuable tool for these companies to help build their brands in the market.