Strategic Adjustments

Retailers supply chain management 2

Why are you not managing the perimeter aisles as well as you're managing Kellogg's?

By Vishy Visweswaran 

Superior supply chain management is, undoubtedly, more critical for retail leaders today than ever. In a turbulent industry driven by constantly evolving consumer demands, retailers should be able to find solace in the fact that the supply chain managing the performance of their perimeter aisles is just as efficient as that managing the center store. Amidst the demand for cleaner labels, fresh ingredients, fewer shelf-stable products and grab-and-go items, grocers need more support from the supply chain.

Perishable items, especially produce, truly are differentiators within the walls of grocery retail and are often what drive the consumer to choose one store over the other. Even with the knowledge that the perimeter will become more and more paramount to bringing in traffic, supply chain practices and technology are still serving the center store as its VIP customer.

Produce, deli and bakery sections are the most vulnerable to margin pressures, shelf-life challenges and stock outs. These are the sections that have historically been underserved by supply chain technology and reliable, repeatable processes. The center of the store however, has traditionally enjoyed the benefits of supply that is easier to maintain on-shelf and promotions that are micromanaged to success.

The following are some suggestions for grocery stores on how to better approach supply chain management in the fresh aisles specifically, based on today’s most pressing paradigms. To thrive, they must consider the evolving consumer, as well as the evolving supply chain. With the same careful planning and attention given to perishable items, retailers can experience expanded margins while serving the needs of their shoppers.

Personalization Versus Scale

Consumer demand for personalization has driven the food supply chain – and more specifically, the perimeter aisles – to rapidly evolve. Today’s supermarkets offer unprecedented variety and selection with the modern food supply chain as a necessary and complex support system.

With a greater emphasis on local goods, consumer demand has put an additional layer of complexity on sourcing and distribution channels when it comes to tracking, tracing and ensuring the quality and integrity of food sources. Although the food may travel a shorter distance, it comes from a larger number of smaller sources to deliver shoppers the local quality food they demand.

Retailers Supply Chain Management produceLeaders on the “outside” need to get “inside” by using technology to gain much needed visibility into inventory and costs both of finished goods and raw materials. This will support them in making data-driven decisions that ensure that their customers can get the fresh, innovative product they want, when they want it. The actionable data from an integrated sourcing and supply chain solution coupled with expert category experience and marketing with confidence, will show meats, fish and produce as the true VIP customer.

The Sophisticated Customer

Consumers not only demand an expansive variety of product, but also a greater mix in the perimeter aisles. Whether these products are preservative-free, GMO-free, gluten-free or antibiotic-free, we all know that they are certainly not ”free.” They are quite the opposite, which is why retailers must put more of their resources and technology into supporting the perimeter aisles where the attention to gross margin in the more customized, personalized fresh shopping experience is a top priority.

The landscape of the food industry is changing, and the mix of ambient to fresh in a store is partially responsible. Typically, supply chain technology for core, new and promotional items has been used for supply planning and execution in the center of store. Fresh category leaders are encouraged to get in line for technology that ensures confidence in inventory availability for their customers who may be choosing their store for its unique fresh items - items that, by their very nature, are largely pure and undiluted and directly tied to the more unpredictable commodities market.

Evolution of Distribution Points

Finished meals and new delivery services online and via convenience stores threaten the relevance of grocery stores. In competing, retailers can bring more attention to the supply chain as it pertains to promotions regarding their perishable items.

Just like promotions in the center of the store, perimeter promotions will drive interest and traffic but not always as seamlessly. In the center of the store, vendor partnerships and technology are used to micromanage promotions and manage rebates. Meanwhile, promotions in the perishable aisles are not nearly as coordinated despite the fact that the fresher, cleaner and inherently more complex items can benefit from technology more than the average center store product.

Perishable items are more difficult to keep in stock. In moving past unpredictability, category leaders will need to dive head first into promotions planning in order to understand the true capacity of their suppliers. This will arm retailers with contingency plans to protect themselves against the industry’s shifting needs despite unpredictable promotions planning.

Encouraging the perimeter aisles to optimize operations with tremendously elevated margin pressures requires a keen use of data to break down not only total costs, but also true costs. It requires data to share demand signals across the chain through reliable, automated collaboration and measures to put in place the best supplier line up. With continued work on their supply chains, supporting technology and business processes, the industry is in the position to rally full store, coming together to keep pace with consumers’ rising expectations.

Vishy Visweswaran is the chief technology officer at SCA Technologies, leading the development and delivery of SCA’s proprietary technologies in the areas of supply chain cost management, category sourcing and optimization. He has extensive experience helping food companies use predictive analytics and cost management solutions to improve margins, reduce costs and deliver pricing and margin predictability. Visweswaran can be reached at vishy.visweswaran@scatech.com.

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