Since the onset of the pandemic, online direct-to-consumer channels have become an absolute necessity for the beverage industry, where historical e-commerce penetration has been relatively low. From soft drinks, coffee, and tea to wine and spirits, many companies are having notable success and building their brand using various digital platforms, including integrated sales sites and mobile app-based services.
However, the consistent presence of out-of-stocks is frustrating brands across all beverage categories and their retailers. The more often consumer favorites are out of stock, the greater the opportunity for competing brands to grab that market share. And the more frequently stock-outs occur, or the more prolonged they are, the more likely consumer preferences will change for good.
Connecting the Dots to Supply Chain Equilibrium
The growing risk of stock-outs is a double-edged sword for supply chain operations. Companies must balance their safety stock levels with rising variability in demand and supply while reducing spend and avoiding the sale of overstock at a loss or, even worse, products expiring in the warehouse. And all these elements must be coordinated perfectly across the supply chain to keep the business profitable and satisfy customer needs.
Understanding the current state of these critical supply chain dimensions is not just limited to surviving and thriving in a pandemic. It also lays a long-term foundation for a supply chain resilient against extreme volatility and one that continuously improves to drive strategic change.
Traditional reliance on spreadsheets when gauging demand and managing the order-fill rate for products leaving the warehouse is no longer enough. This basic replenishment tactic does not provide the accuracy and visibility needed to drive greater efficiency, ensure a right-sized inventory, improve customer service, and expand product sales. Supply chains must also respond to demand variability that can change at a moment’s notice.
For brands that serve customers across hundreds of locations with an expanding product portfolio, spreadsheets cannot help sense and respond to every subtle shift quickly. This was certainly the case for some businesses that decided to focus on supply chain innovation, which included the implementation of a digital supply chain platform.
By taking this step, companies gain a clearer picture of demand to understand future market needs. They know how well they are positioned with available capacity, which products are obsolete, and when inventory should be replenished in the warehouse. And all these activities are accomplished in ways that consistently meet demand without the risk of overstocking.
In return, companies can operate with service levels close to 100%, while inventory turns accelerate from eight to nine turns each year to upwards of 14 turns. Obsolete inventory holdings can also be dramatically lower by making planning cycles shorter and more frequent to strategically react to short-term activities, such as promotional events, unexpected weather, or early or late seasonal changes.
Quenching Customer Demand with Data-Driven Impact
Increasingly, beverage companies understand the importance of going beyond just keeping products flowing to the consumer – whether they encounter a minor shift, game-changing disruption, global economic crisis, or catastrophic weather event. But they must now apply that knowledge to protect their consumer base and seize opportunities when the time comes.
Inventory optimization for beverage brands takes a three-pronged approach that covers:
1. Tactical and strategic inventory modeling
Identify forecast accuracy and safety stock issues to create a right-sized inventory based on SKUs. Businesses can compare actual demand against forecasts and measure the actual receipt of goods alongside the plan for each SKU. Plus, they can add historically based estimates into the equation to predictively calculate service levels and leverage side-by-side scenario analysis to determine where to make or stock products and how facility closures or openings impact distribution channels.
2. Demand forecasting
Get timely answers to complex what-if scenario assessments, including impacts of channel changes and stocking policies across a complex and volatile global distribution network. Inventory optimization boosts forecast accuracy to further synchronize inventory alignment.
3. Inventory replenishment strategies
Pinpoint which products are susceptible to supply issues and the root cause to apply corrective action early on. Supply chain organizations can get ahead of replenishment challenges by using postponement strategies, accelerated or delayed cycle times, supplier improvement, and shifts in other parameters.
Guiding Fast, Accurate Replenishment with Digitalization
The magnitude and duration of change in the beverage industry requires a more flexible approach to inventory management. Instead of manual planning methods, brands must combine traditional supply chain intelligence with real-time business knowledge to adapt, innovate, grow, and emerge stronger than ever.
Inventory optimization for beverage brands can help right-size inventory buffers and restructure where and how inventory is held in ways that drive powerful financial benefits and adds tremendous value to the sales and operations planning (S&OP) process. But more importantly, they can help beverage companies move at a pace that ensures every market opportunity further unlocks their recovery and growth potential.
Vice President, Product Innovation
Steve Ungar is a vice president with Logility’s Product Innovation group, bringing over 30 years’ experience defining and creating software that delivers value to customers. Since joining Logility in 2013, Steve has held senior level positions in product management and professional services, ensuring the software developed and deployed addresses customers’ most pressing supply chain business needs.