Supply chain management may lack the cool of new media and the sexy appeal of advertising, but as several high profile casualties have found to their cost, if suppliers don’t deliver then neither will the brand – and you can kiss goodbye to the millions of pounds spent carefully nurturing reputation and loyalty.
From widget suppliers to the customer services person at the end of the phone, via all points in between, each element of the supply chain has the potential to enhance or destroy the end brand. There is no better illustration of how difficulties with the supply chain can wreak havoc than the problems Sainsbury’s encountered with stock availability.
The grocery giant learned a painful lesson about the importance of “stock outs” when customers started deserting them by the trolley load. However, it took a group of disgruntled investors and a new chief executive before Sainsbury’s recognised that their poor performance was in part because customers were unable to complete their weekly shop.
“There’s no denying Sainsbury’s is a wonderful brand,” says Brian Milburn, chairman of product design and sourcing company, Ultimate Products. “But the old cliché ‘retail is detail’ has never been more relevant. Supply chains have become very sophisticated, especially in the chilled products and fresh food areas where retailers are increasingly using just-in-time deliveries. Many are getting their supply systems down to a fine art, but the effectiveness depends on how slick they are at keeping shelves stocked. That’s the hardest part and if you don’t sell to customers then you have failed,” he adds.
An efficient supply chain can be key when it comes to establishing competitive superiority and, in the ruthless world of high street retailing, such wafer thin advantages can mean the difference between success and failure. “There is no reason why the supply chain should be viewed as a brand risk,” says Glen Gribbon, managing director of Charterbrands, brand owners of Pomegreat, one of the fastest growing juice brands in the UK. “It can help achieve differentiation in crowded markets and, with growing consumer interest in ethical and green issues, also help brands to position themselves more effective.”
Careful stock management
Niche brands such as Pomegreat have generated a lot of media interest, but this can sometimes create problems/ as, for example, a positive news story creates a surge in demand. Gribbon says: “When you’re still winning distribution, sudden spikes in sales can create supply problems. However, there have been some real changes in the last two years, especially in the relationship between manufacturers and retailers, which has become far more cooperative than in the past.”
Gribbon identifies both the quantity and also the quality of information that is shared between the different parties as being an important development. “There’s a far better exchange of data between people in the supply chain and that makes for more accurate forecasting,” he says. “It means we can constantly review forecasts and build in flexibility to prevent stock-outs. During the summer, for example, we’ll revise forecasts every month and because the agreements with suppliers are more formalised, it reduces the risk of running out of stock,” adds Gribbon.
Concentration on CSR
There is, however, another reason why retailers are taking greater interest in the supply chain. Heightened consumer sensitivity to corporate social responsibility has resulted in shoppers demanding more information about what’s behind the price and that means being able to scrutinise every aspect of production and supply.
But are there limits to the amount of information brands need to supply? Glen Gribbon doesn’t think so. “Consumers want visibility but they don’t just want confirmation, they want connection with the farms and producers,” he says.
Gribbon believes that new software and recently developed Web-based tracking systems allows retailers and their customers to trace and examine every element of the supply chain. “What we’re talking about is improved information but it does mean that supply chain management is becoming a far more strategic management tool,” he adds.
But not everybody is convinced that improvements in the supply chain logistics are being reflected by availability on the shelves. A recently published national survey found that availability of several leading consumer brands in Britain’s top six supermarkets deteriorated during 2006. A six-month review to January 2007 revealed the majority of retailers racked up nearly twice the number of out-of-stocks compared with the first half of the year, with average levels slipping from 98% to 96%.
Store managers, however, deny there is a problem. In a survey of 50 of the top 500 stores by Storecheck Marketing, managers insisted availability was good, although some admitted that limited lines in some categories might cause the perception of poor availability.
But most experts concede there is an issue. Some blame the supermarkets’ recent preoccupation with environmental issues. “The supermarkets have been dealing with many other issues such as reducing waste and carbon emissions, allowing availability and other basic shop keeping principles to slip down the agenda,” says Tim Kershaw, chief executive of supply chain consultancy Libra Europe.
Others, however, such as Mike Garnham, chief executive of MSF field marketing company, believe that there are deeper issues to be addressed. He says, “The creative and media buying process surrounding a brand are planned in great detail. Huge expense in time and money is spent on creating brand promises. But making sure the brand promise is kept rarely plays a significant part in marketing strategy.”
Critical of both brand owners and retailers on this issue, Garnham continues, “At times it is almost as if brands are released like young salmon that are expected to fight their own way into consumers shopping baskets. In nearly all cases it is junior third party staff that are the ultimate deciders of if, when and how a brand appears in the retail environment. This applies to the vast majority of retail outlets whether they are multiples, CTNs, convenience stores, garage forecourts or electrical outlets.
This is ironic because manufacturers of packaged goods and electrical products now have highly effective supply channels that get products to retailer’s regional distribution centres (RDCs). Equally, retailers have developed networks that ensure brands are distributed efficiently from RDCs to the warehouses and stock rooms of individual stores. However, it is the last few yards in which brands fail to get to market effectively,” says Garnham.
Understandably, the retailers see it somewhat differently. Tesco insists it has no availability issues and has a robust system for checking stocks. “With Gap Scan staff manually scan all products in the store twice a day,” says a spokeswoman. “If something is out-of-stock it immediately tells us why and how quickly it can be replaced. If a particular product is in the back it can be done immediately.”
However, the very act of moving stock from the warehouse to the shelf can be problematic, argues Mike Garnham, not least because quite often retailers just don’t have enough people on the floor. He says, “A major problem in overcoming this challenge is a lack of investment coupled with few senior packaged goods marketers being involved with products at ground level. In addition, field activity is often seen as a tactical activity rather than a strategic task.”
An issue of resources
Garnham agrees that the biggest challenges are making sure brands consistently get onto the right shelves and at the right time. And that means having the resources to make sure it happens. “The only way to undertake this activity is through field marketing. It requires experienced staff who understand the nature of particular types of outlet,” says Garnham. “Although packaged goods companies do sometimes have their own field teams it is often better to outsource activity to experienced agencies. It enables brand owners to increase and decrease the use of field marketing depending on need,” he adds.
Nevertheless, since Sainsbury’s chief executive Justin King’s acknowledgement that the supermarket chain must improve its stock availability if it wants to retain its former position, field marketers have reported that their relationship with local store managers and with merchandising and buying teams is improving.
At the same time retailers also need to be confident the agency staff operating in their outlets are working to agreed standards. Bad agencies can be a hindrance to stores and can harm the brand, the retailer and the whole field marketing industry.
The speed of change
In fairness, however, the speed at which the industry is changing has caught many by surprise. This has prompted some field marketers to call for more emphasis on field marketing as a strategic rather than tactical marketing tool and for it to be included in store management training programmes.
Mike Garnham says, “Ideally, field marketing would be a strategic marketing medium with agencies sitting at the big table when planning decisions are being made. Until this happens the final few yards that make the difference between a brand making it onto the shelf and into the shopping basket will often be in the hands of someone who knows little and cares less.”