As retailers elevate their in-store experience, they are changing policies and expecting suppliers to “shoulder some of the burden,” says a McKinsey report.
“Leading retailers are tightening supplier service expectations and imposing stiff financial penalties for orders that are incomplete or that miss agreed-on delivery windows. Kroger fines suppliers $500 for each order delivered more than two days late. Walmart charges suppliers’ 3% of the purchase price for every order delivered early, late or incomplete.”
Walmart has initiated a process called On Shelf Customer Availability (OSCA) — an attempt to combat the cost of empty shelves by offering a data incentive to manufacturers who meet specified delivery standards. Walmart said that it will share more data with suppliers who move quickly to refill out-of-stock items as it tries to better compete with rivals like Amazon.
Inventory glitches are a constant problem for retail sales. Forbes reports that worldwide, retailers lose a whopping $1.75 trillion annually from inventory overstocks, out-of-stocks and returns.
As retailer sanctions become the norm, they could impose serious pain for suppliers. McKinsey suggests that monetary penalties could add up to more than $5 billion a year across the United States, if the CPG sector doesn’t improve its current delivery performance.
On one hand, Walmart’s OSCA data is a groundbreaking, collaborative move on part of the trend-setting retailer. On the other hand, this olive branch will only impact on-shelf availability and revenue generation if manufacturers are equipped to use the data for analysis and demand planning.
The truth is, CPG companies don’t have a data problem; they have an analytics gap.
Mega retailers like Walmart control access to many consumers — in the United States, Walmart Stores’ revenues are three times those of the Procter & Gamble Company. CPGs shouldn’t shun this data reward. After all, it’s a great way to gain greater insights on shoppers. CPG companies can leverage OSCA data as a catalyst toward analytically-driven decision making.
CPG Data Analytics
CPG data analytics refers to the intelligence generated using specific data sets. For CPGs there are plenty of key performance indicators that can drive more efficient and profitable business. Look at the metrics around units sold / per retailer, sales trends, product pricing, competitive reviews, distribution information, and customer behaviors. An Accenture study found that only 9% of businesses have fully implemented an analytics operating model in its entirety, while 40% state their models are only partially defined. Only 9% have made predictive analytics a priority, focusing instead on hindsight descriptions of what has already occurred.
Generate Insight with TPO
Consumer goods companies using trade promotion optimization tools can harmonize spending and shipment data for post-event analysis. Post-event analysis becomes the foundation to collaboration with retailers like Walmart because it eliminates the divided understanding of in-store activity. Promotional insights serve as the driving force for informed predictive planning, which then develop promotional events and annual plans that are mutually beneficial for manufacturer and retailer.
Manufacturers can use a TPO system’s constraint-based optimization to define the optimal event or promotional mix within retailer and manufacturer constraints to reach revenue, volume, or profit objectives. Constraint-based optimization perpetuates transparency with retailers for open dialogue.
CPG companies should be excited for the potential to gain coveted insight.
There’s no overstating the importance of data – from all the resources you can gather it from. To benefit specifically from Walmart’s OSCA data, manufacturers need to prioritize more than order fulfillment. The impact that TPO capabilities can bring – CPG companies can meet (and even exceed) retailer expectations. With the right system in place, you can improve existing decision-making processes.