Overcoming the “Rotten” Challenges of Fresh Inventory Management
Forecasting and replenishing fresh products such as produce and dairy is a tough challenge for most food retailers. And many companies often, to their detriment, use the same inventory management methods for both fresh and non-fresh items. The reality is, though, fresh products have many limitations that are not as important with other center-store items. These products are:
• Subject to shelf-life concerns
• More prone to consumer scrutiny
• Have higher waste potential
As such, any effective forecasting and replenishment system must provide special intelligence for fresh products.
Fresh Inventory Means Short Shelf Life
The first problem with many forecasting methods is the use of moving averages or predictions on a weekly basis. Fresh products are highly prone to variable movement by day of week and day of month, and they are often very seasonal, especially fruits and vegetables.
In order to properly forecast fresh products with short shelf lives, effective forecasting technologies must understand when an item will sell. Some categories such as prepared sandwiches sell well during the week but have little movement during the weekend, while dairy often sells better during weekends. If multiple deliveries per week exist, then each delivery should be optimized to bring the product to market only when needed so you can maximize shelf life and reduce waste.
Consumer Demand Drives Fresh Inventory Management
A second issue revolves around how some systems focus on consumer demand to forecast orders. This may be fine for pet food and canned goods, but for milk, yogurt, prepared sandwiches, fruit and salads, consumer demand is only part of the equation because waste exists for fresh products. In addition, some products such as strawberries sell based on visual appeal. These products can see 20% or higher waste. That amount of waste needs to be both predicted and optimized.
The predicted amount of waste must be added to the amount of demand predicted so you can create an order that will fill consumer demand. The amount of waste also needs to be tracked to determine a particular item’s demand patterns in each market, as well as to determine the optimized profit pattern.
To achieve the maximum profit, a company should balance shelf life concerns, consumer demand patterns and waste of an item to find the most-profitable order point. Very few automated systems take into account all of these factors for fresh items, and therefore few merchants rely on computer-assisted ordering systems for fresh categories.
The fact is, consumers are taking notice of retailers that provide fresh products with long shelf lives, because they are interested in healthier fresh alternatives. And they’re favoring local grocery and convenience stores that can provide high-quality fresh items.
So any retailer that can meet the “fresh” challenge and effectively balance when a product sells versus when it spoils will change perceptions in their marketplaces, move ahead of the competition and be on the fast-track to higher profits.
For more information about fresh inventory management trends and best practices, contact Alex Achour at Alex.Achour@Retalix.com.