One of the main problems faced by the FMCG sector is the flow of products to the store shelf and ensuring their constant availability for the consumer making daily purchases. The reasons for its occurrence are varied:
– disruptions in the supply chain information system caused by losses occurring in all phases of the logistics process and final sales, distorting the true picture of demand
– disruptions in the flow of products to store shelves, stemming from improper transport packaging
– staff failing to keep up with replenishing stock on the store shelf due to the increased pace of shopping.
The listed causes significantly increase operational costs, extend the supply chain’s response time to market demand, and shape the actual, often unsatisfactory, level of service for consumers. The fight against these phenomena is taking place on two fronts: internal (operations management area) – in companies striving to improve their internal operations and relationships with direct suppliers and recipients, and external (supply chain management area) – on the supply chain forum, where companies adapt their behavior to a common strategy. Different methods of operation are used on both fronts. For example, to curb losses caused by internal theft, companies reorganize warehouse operations, implement control procedures, and employee monitoring systems. Meanwhile, within the supply chain, automatic identification systems are being introduced, enabling the tracking of product movement, identification of so-called “hot spots” where losses occur, and supply management methods are being implemented that reduce staff activities requiring physical access to individual products. To eliminate the risk of accidents and damage to goods in warehouse operations caused by poor pallet quality, delivery acceptance procedures are being tightened, including criteria for pallet assessment – often subjective and causing tension in relationships with suppliers. Conversely, actions taken within the supply chain are aimed at limiting these same risks by eliminating the root causes that lead to such pallets appearing in circulation at all.
Losses in supply chains
According to the methodology developed within the European ECR project regarding the prevention of losses in supply chains, a loss is defined as the difference between the theoretical and actual stock level in relation to sales value, costs, and volume.
Example:
– Initial stock: 100
– Deliveries in transit: 30
– Sales: 50
– Theoretical ending stock: 80
– Actual ending stock: 70
– Difference – lost stock: 10
– Magnitude of losses
(difference/sales)%: 20
Tables 1 and 2 show the results of loss studies conducted in the European FMCG sector in 2003. As part of these studies, conducted in 26 European countries, a total of 250 retail chains and 44 manufacturers were analyzed. As a result, the magnitude of losses was determined, and their nature and causes were revealed. Annual losses, shown in Table 1, reduce the revenues of companies in Europe by approximately 24 billion euros. Losses occur in every link of the supply chain and in every phase of the flow. The magnitude of losses varies depending on the location of their source in the supply chain (Table 2). The dominant place of their occurrence is the last link of the supply chain – the place where the consumer makes purchases and where the largest number of people have direct access to products. This does not mean, however, that the consumer, whose daily needs are the source of operations management and supply chain management, is the main cause of the loss problem. It is only one of four causes of their formation (Figure 1).
The research results indicate that in terms of value, the largest losses occur in the last link of the supply chain (Figure 2). However, in terms of quantity, the main source of the problem is the supply chain itself, in which 62% of all related problems accumulate. Their source is internal theft, supplier dishonesty, and process errors.
The article comes from the magazine “Logistyka” 6/2007.