A costly pitfall for your food supply chain is inventory obsolescence. Without the proper inventory management, you can quickly accumulate excess stock, which will then go to waste. Products in the Food and Beverage industry are especially tricky since their shelf-lives can run out.
What causes Inventory Obsolescence?
1. Making a product at a time when demand is too low
2. Not selling enough products in time, so inventory expires
3. The market loses interest in the offering, making further sales too difficult
With an expired or commercially unviable inventory, there is no choice but to put it in a landfill or similar waste disposal. Dumping products is an expensive consequence. Not only do you lose the costs of production and storage, but you also pay for getting rid of it all. The industry term for this occurrence is dump risk.
What increases dump risk?
- Striving to have enough safety stock to meet the potential unknown demand that will come
- Sometimes, the safety stock ends up being much larger than the actual demand.
- Not knowing how efficient or reliable the production is
- Too much inventory is added to the food supply chain to compensate.
What if I don’t meet demand?
Too much inventory leads to obsolescence and dump risk, but too little is an equally costly affair.
Imagine you are a chocolate producer. A long-term customer of yours is visiting their local supermarket to buy some of your chocolate. Much to their dismay, there is not any left. You predicted the demand to be much less than what it turned out to be. Unfortunately, the customer settles for one of your competitor’s chocolate bars instead. The unsatisfied customer then realizes they prefer the new chocolate bar. From that point on, they start choosing your competitor’s brand over yours and their loyalty is lost. You did not meet your demand, so you lost a valuable customer.
Not meeting the demand for your product gives your competitor’s a huge advantage and can jeopardize your margin. Most large retailers have some type of on-time in-full (OTIF) penalties if you cannot fulfill the full order on-time. This means potential loss of shelf space, penalties that reduce margin, and a poor supplier scorecard. No brand can withstand those headwinds these days. So, while you ensure that you do not exceed required inventory levels, also ensure that you do not go out-of-stock.
The key to avoiding these pitfalls is planning. Proper planning allows you to manage your supply of products and their potential shelf-life constraints.
What are the 4 important factors of Food Supply Chain Planning?
- Correctly predicting your demand lets you reduce your inventory levels to match it. You have enough for everyone whilst not having so much that you end up with obsolete products.
- How much can you produce? How fast can you produce it? How much can you have in stock at a time? To meet your customer’s requirements on-time and in-full, planning your capacities according to your demand signals is essential.
- Production usually involves several plants or vendors. You could either own or rent production plants scattered across your area, country, or around the world. Each plant produces or handles materials that meet the various demands of your operation. You can also buy materials and having them shipped to you. This spiderweb of plants, producers, and sellers is your network. To meet your requirements, you rely on the planning and transparency of that network.
Correctly predicting your demand and planning accordingly is a tall order. By using food supply chain planning software solutions or apps, you can make tracking your data easier. Planning software helps predict demand and get an overview of your operations. By correctly forecasting and predicting your demand, you can reduce or increase your inventory levels accordingly. This helps you avoid a high dump risk or becoming out-of-stock.
What solution should be used?
A food supply chain software solution can also help keep track of your network. It will provide you a top-down look at the demand and supply that pertains to the various plant locations.
We recommend the Adroit Outperform Planning solution. Outperform Planning can use your historical data in combination with its forecast engine to make you a plan. It is optimized for the Food & Beverage industry, allowing you to track shelf-life constraints, good before dates, and more. Inventory planning, product lifecycle forecasting, network overview and much more is all in one app. Let the Adroit Outperform Planning solution cover your entire food supply chain planning process.