Solving the Out-Of-Stock Problem: A GMA/FMI Trading Partner Report

8% out-of-stocks 3-strikes-and-you’re out! How can we achieve 98%+ OSA?

OSA Team Charter Approach Whitepaper

Charter, survey and recommendations are outlined in the whitepaper

We welcome collaboration with industry and cross-functional teams

Join our sessions in this conference to review results from joint pilots and discuss OSA approaches in the Jazz session

Passion & Industry Collaboration

Consensus & Theory •Transparency and

alignment •GBB Framework •Action orientation

OSA Survey & Insights •77 responses from

suppliers & retailers • Identified critical

gaps

Industry Whitepaper •Good-Better-Best

Definitions and Recommendations

•Future considerations

Actions •Collaborative Pilots • Ishikawa “Root

Cause” Chart •Phase IV Definitions

2013 2014 2015 2016

Retailers •Delhaize: Brian Wiles •HEB: Ron Ozment •Meijer: Brian Sikkema •Rite Aid: Paul Hanko •Wegmans: Dave Texter

Manufacturers & Distributors •Clorox: Lisa Malvea •KeHE:Jeff Branecki •McCormick : Waddell Daniels •Mondelez: Eric Kim •Nestle: Tom Gagnon •P&G: Lois Fruhwirth

Service Providers •Genco : Gene Bodenheimer •GS1 US: Ryan Richard • Inmar: Steve Dollase • JDA: Danny Halim •GMA/FMI: Daniel Triot

2015 Team Journey

On-Shelf Availability Pillars Our Scope and Recommendations Within the supply chain circle of control and influence

We welcome collaboration with industry and cross-

functional teams

Sales & Merchandising

Supply Chain

Retail and Store Ops

Process/Practice Gap: event synchronization & timing •Remove event ‘lock date’ •Collaborate early and through event execution •Joint contingency (high-low)

Organization Gap: clear ownership on forecast and inventory •Joint business planning leveraging OSA data & metrics •Remove silos, work to common language •Align rewards and incentives

Metrics/Data Gap: data & integration automation •Use one demand signal throughout the value chain •Reduce bullwhip effects •Better use of data to quickly determine root cause and respond to OOS

Framework Good •Based on zero on-

hand (item-store)

Better •Lost Sales •Min Presentation

Qty

Best •DC-to-Store Fcst

Movements •Promoted vs. Non-

Promoted

Future •Proactive Alert •Shopper

Availability at Moment of Truth

Download the whitepaper: http://www.gmaonline.org/file-manager/About/15032FMIN_TPA_OutofStock_v51.pdf

Collaborative Planning with One Demand Signal by

Tom Gagnon – Nestle USA Brian Wiles – Delhaize America

Pilot Charter

BUSINESS ISSUE: Many forecasts are done by both Retailer and Manufacturer in support of a major promotional event, and very few of these forecasts are connected to the same demand signal. There is event “Lock Dates,” for Manufacturers that require more lead time than most Retailers are willing/ able to give. This lead time gap results in both Retailer and Vendor to rely on their own independent demand plans for the event, and when things don’t go as planned there is no clear ownership and accountability to the events success or failure. To address this business issue Delhaize America and Nestle USA are willing to pilot Collaborative Planning using the Same Demand Signal in Support of year end activity, and January 2016 Frozen promotional events: BENEFITS: Process improvements will optimize Sales event with an increase in forecast accuracy, reduction in excess inventory, and improved on shelf availability position, which will result in increased Sales and Customer Satisfaction. DELIVERABLES: • Determine the ‘one forecast’ to use for both Retailer and Supplier • Define the ‘lag’ periods to facilitate effective collaboration • Develop joint contingency plans for both high and low side projections • Perform post-event analysis between forecast and planned orders

Macro Factors Impacting Pilot

Product Supply Issues New Players on Both Sides Category Push Back Conflicting Yearend Goals Frozen WH Capacity

Favorable Ad Dates Positive Growth Trends Leadership Support Collaborative Partnership No Outside Storage

Head

win

ds

Tailwinds

Advance Forecast Milestones (Dec 6th 2015 – Jan 9th 2016)

Oct 30th 2015 Aligned on Item Forecast

(One Forecast)

Nov 6th 2015 PO’s Written (Nestle VMI)

Nov/ Dec 2015 3 Week Item Forecast

(DA Forecast LAG)

8

Forecast Accuracy Metrics (Dec – 2015)

• Highest Accuracy Rate (Past 24 Months) • 79% December Last Year • 72% 2015 Average • No Promotional Event Changes

89% Meals Forecast Accuracy

• 68% December Last Year • 64% 2015 Average • Promotional Event Changes (< 2 Week Notice)

68% Handheld Forecast Accuracy

DA Metrics For Promotion 1st week of January

10 Weeks Out 3 Weeks Out

Forecast % 67% 77%

Bias -11% +14%

DC Out of Stocks 18 Items had OOS 4 Items Contributed to 75% of the Total

Retail In-Stock 2015 2014

Perpetual Inventory 99.7 99.6

Learnings and Insights

Learnings • Having all parties involved and aligned on providing all pertinent information timely is

required. • When changes to the plan occur it is imperative that the parties involved connect to

clearly understand the impact to the forecast (had several examples during pilot) • Forecasting further in advance is straight forward when all the pertinent is available • Determining order quantities for Purchase Orders is more complex due to factor in on

hand/ on order variables.

Recommendations for Improvement • Education of Category Leadership on: • The potential increase shelf availability and COG’s benefits of longer lead times for

vendors for promotional events. • On the risks and costs associated with changing promotional plans on short notice.

Need to find the sweet spot between being flexible to meet consumer needs and operational execution.

• Develop a process to provide a directional forecast out 8 weeks as well as refined forecast 3 weeks out.

Call to Action

Industry • Got to Start Somewhere

– Pilot Concept – Learn and Re-apply to More

Customers

• Use one demand signal to drive One Supply Chain

• Collaboration to better align timing of event forecast plans, inputs & commitments

• Joint high-side and low-side contingency plans

• Better Forecast/ Better Planning/ Better OSA Results

(Sales and Customer Satisfaction)

DA & Nestle • Build Upon New Baseline and

Participate Again Next Year

• Learn and Re-apply to More Events

• Learn and Re-apply to More Customers

• Leverage the Upstream and Downstream Learnings

• Continue to Share Learnings/ Wins with Industry to Help Advance OSA

OSA Best Practice Sharing by

Steve Dollase – inmar

14

Root Causes for Out of Stock

14

15

Out of Stock due to Ordering and Forecasting

ROOT CAUSE AREA ISSUE DESCRIPTION SOLUTIONS/BEST PRACTICES OWNERS

Evaluate CAO processes—do you have a CAO/CGO process and system in place; how and why will overrides be used; and what is the impact on actual orders and OSA? Consider running a pilot study in a few stores covering a selected category and set of products to work out details and evaluate the impact of changes.

Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Consumer Insights, Pricing, Distribution and Transportation, Manufacturers, IT, Service Providers

• Enhance PI accuracy/timing sync and ensure discontinued items are not ordered on CAO/available for CAO ordering• Follow CAO recommendation for safety stocks level• Don’t hide product• Use RFID to track cases and pallets

Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Management, Consumer Insights, Distribution and Transportation, Manufacturers, IT

Distribution

• Adjust delivery cycle to meet most “stressed” items• Monitor delivery frequency and timing

Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Management, Consumer Insights, Distribution and Transportation, Manufacturers, IT, Service Providers

• Improve methods of sorting (off the truck). Triage sorting into immediate OOS, direct to shelf, direct to backroom. RFID can enhance sorting triage

Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Management, Consumer Insights, Pricing, Distribution and Transportation, Manufacturers, IT, Service Providers

• Improve backroom sorting and backroom to shelf processesStore Operations, Buyers, Replenishment, Merchandising, Shelf Management, Distribution and Transportation, Manufacturers

• Sorting• Notification of OOS• Shelf tags

Store Operations, Buyers, Replenishment, Merchandising, Marketing, Pricing, Shelf Management, Distribution and Transportation, Manufacturers, IT

Joint business planning discipline with POS dataStore Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers, IT

Use POS data as one demand signal to drive all forecasts (never forecast what you can calculate) - eliminate bullwhip effects and errors, integrate technology and leverage consumer insights for better forecasting. Consider initiating a joint high side contingency planning process as a first step in breaking down the silos and begin working from a single, shared forecast

Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer Insights, Manufacturers, IT, Service Providers

Add back measure of lost sales• Due to OOS in the estimate• Due to poor execution• Due to Data Synch errors

Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer Insights, Manufacturers, IT, Service Providers

Real time notification of OOS so cycle is not missed (should be few instances due to constant demand nature) Store Operations

Make demand forecasting a range rather than a number and develop joint high-side and low-side contingency plans to reduce Store Operations, Buyers, Replenishment, Merchandising, Consumer Insights, Manufacturers

Align rewards and incentives to the OSA strategies. This should be extended to trading partner incentives as the program matures.

Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers

Technology must be integrated across departments and functions internally, and must be integrated to trading partners’ technology - from raw materials to the shelf is all one integrated process, and the technology that supports this process must function as one.

Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer Insights, Manufacturers, IT, Service Providers

Continuing on the Good-Better-Best theme, there is no need to attempt this all at once. Start by integrating internal systems so there is visibility to store-level inventory and sales across the enterprise. Use store-level POS data as the driver for forecasting demand. Integrate this demand data, along with seasonality, new product introductions and promotions, into replenishment planning. Integrate replenishment plans with Distribution and Transportation and store inventory distribution and execution plans so that you realize the benefits of your efforts.

Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer Insights, Manufacturers, IT, Service Providers

As internal systems are being integrated, work with trading partners to integrate inter-company processes and systems. The goal should be to have a single POS-driven forecast driving all production, materials, distribution and replenishment calculations. The concept is to never forecast what you can calculate so you eliminate forecast error and the bullwhip effect. This will be the basis of the One Supply Chain model, the ultimate solution for OSA going forward.

Store Operations, Buyers, Replenishment, Shelf Management, Merchandising, Consumer Insights, Manufacturers, IT, Service Providers

Make demand forecasting a process rather than a date Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers

Collaborate early and continue to adjust through execution Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers

Remove event “lock date” Store Operations, Buyers, Replenishment, Merchandising, Shelf Management, Manufacturers

Receiving

Forecasting

Timing

Demand Forecasting Accuracy

Ordering and Distribution

Ordering

Best Practices for Ordering and Forecasting

Recommendations to Advance OSA 1. Adopt OSA “Zero On Hand”

baseline – Your stores – Your brands at shelf

2. Commit to OSA wins with rigor on “working and not working” in your organization

3. Create two collaboration pilots towards “One Supply Chain” goal –

and jointly improve event forecasting and resolve out-of-stocks root causes

CALL TO ACTION: TEAM NEXT STEPS:

1. Step up communication and education: – Practical examples & industry

feedback – Technology landscape – Educational tools

2. Develop CEO-level “OSA Passion” to adopt the OSA charter and commit cross-functional initiatives

3. Explore industry-specific applications (e.g. fresh, omni-channel)