Over the past number of months, consumers have experienced both feast and famine in their local grocery stores unlike before the pandemic. Although there are fewer completely empty shelves since the first days, many consumers are still finding that they cannot rely on stores to have their favorite products in stock when they need them most.
The cause is simply that the supply of some consumer goods is constrained, either from surges in demand or shortages in supply. And these constraints are often significant, sudden, and shifting. As a result, many consumer goods companies have had to start placing a larger number of their products on allocation.
Why is this such a big change for CPG companies? Until recently, allocation was an occasional and, where used, routine business process. But now, it is a critical factor for a CPG company’s success, both in terms of retaining or losing shelf space at major retailers, as well as retaining or losing the loyalty of harried and stressed out consumers.
A successful demand fulfillment outcome in a supply constrained situation should ensure that high priority retail partners are taken cared of first to avoid them switching to alternative suppliers or private label goods. Yet, no one should be starved of supply entirely, else the CPG company would lose out on entire segments of consumers.
Most companies have heavily customized or even turned off the rudimentary available-to-promise (ATP) capability that came with their ERP system. Their current process works by pre-allocating the limited supply in advance to their different retail partners, then communicating those quantities to them with the intent that they order within their allocated limits. However, this process cannot react to sudden and shifting shortages; takes time to communicate and reach agreement with retailers; and cannot react adequately to demand upsides or to more- or less-than-anticipated supply. The result, unfortunately, is inadequate supply for their priority retail partners and consumers, and significant On-Time, In-Full (OTIF) penalties.
Introduce the evolution of available-to-promise to Intelligent Order Promising, a solution that can recommend allocations based on highly accurate, short-term forecasting such as antuit.ai’s Demand Sensing solution. Pools of supply are maintained at different levels of the customer hierarchy to counterbalance first come, first served behavior.
Orders are promised based on priority considering currently available supply and allocated amounts. Priorities themselves are determined by a set of business rules aligned with strategically determined segments set in the beginning based on rigorous analysis. These rules can be refreshed periodically as business conditions evolve.
Intelligent Order Promising can react to sudden supply constraints, but also capitalize on new opportunities in demand. With pre-defined rules, the system can automate the process of tie-breaking and supply reservation across accounts, warehouses and regions, eliminating time-consuming and non-value add activities for manually determining order quantities for both the consumer goods company and its retail partners. More importantly, it helps CPG companies avoid disappointing their most valuable retail partners, avoid OTIF penalties, and ensure consumer loyalty at the retail shelf.
The times of consistent and predictable supply and demand are gone, and likely to not come back – at least not anytime soon. To maintain their industry leadership, or even to stay competitive, consumer goods companies need to start embracing new ideas and technologies, like Intelligent Order Promising.