In a recent blog, we talked about how a market read for the wholesale channel would enable suppliers to evidence the scale and scope of this route to market to gain internal investment and accurately calculate size of prize/opportunity. The other obvious area to tackle with regards to levelling the playing field with the retail multiples is forecasting and stock management but gosh, this is a thorny issue to address!
I have debated writing this piece for a couple of weeks, the issue of forecasting and efficiency of supply chain through wholesale is a hot topic – made even more relevant through the pandemic and Brexit but it does come with so many inherent cultural and operational challenges.
Before we tackle the challenges, let’s look at the issue. Turning to how it works in the retail multiples for a second to compare. The mults often hand inventory management over to the supplier to manage. Warehousing and logistics become the responsibility of the manufacturer and the retailer provides sales data to ensure that products are replenished at store just in time. It is worth mentioning at this point that data is provided for this process without cost BUT there are severe penalties if the replenishment process fails AND detailed data about customer behaviour and market trend is not free (just to counter the frequently cited claim that retail mults data is free and wholesale is not, which significantly over-simplifies the commercials to be honest).
So how is this different in wholesale? This was touched upon at the recent FWD Conference by Bestway Managing Director, Dawood Pervez and Unitas’ Chairman Mark Aylwin. In wholesale, operators (cash and carry in the main) will tend to hold about six weeks’ stock in their own premises, not usually share live stock data with suppliers and manage their own inventory and replenishment. In the past, the clear benefit to this operating model has been the level of opaqueness between the buying and selling of product on and off promotion and the additional margin opportunity from well-timed buying. I am not pointing fingers in this blog, simply observing that it is a fact of this industry and the main reason we have not re-shaped forecasting and inventory in many cases. It is also worth revisiting a point I made in an earlier blog, that wholesale is a very useful repository for off-loading high volumes for suppliers, which also clouds inventory management from supplier-side. All of this means that our channel can make it quite a challenge to achieve accurate forecasting and regular buying patterns!
However, the disadvantage to these operational practices is that our sector frequently feels that its stock levels and replenishment requirements play second fiddle to the retail multiples. Which is hardly surprising, on the one hand wholesalers have set the tone by accepting huge swings in volumes and, on the other, suppliers must decide whether to deliver to wholesaler x or retail multiple y in the knowledge that retail multiple y has imposed harsh financial penalties on non-performance. Clearly, it is more nuanced than this in a lot of cases, but this simple calculation will underly a lot of logistics decisions – particularly now.
And it is worth noting that whilst there are still many wholesale operators who are opaque about their stock holding and their buying patterns, there are many more who are not. Off invoice promotions are increasingly common, as are retail club promotions with a requirement for evidence of sales against promotion discount to specific customer groups. The bigger operators in particular share stock and order data and place some onus on the supplier to support forecasting and forward planning. Foodservice, with its requirement for very high service levels and lower stock holding, operates quite differently as well so, to some extent, our sector has moved on in the way that it operates but our systems haven’t. We are, perhaps, held back by the few whilst the many have already moved on.
So where will this go? This is inextricably tied to data provision – something TWC is committed to -and it is also linked to having a channel that is fit for the future and competing on a level playing field in order to thrive and survive. Ultimately, we know that wholesalers into retail are being encouraged to adapt and flex their operating model to meet the return-on-investment hurdles that suppliers are now imposing. We know that off invoice discounts and evidence of sell through are an inevitability for the whole channel eventually, not just parts of it, but the last bastion of wholesale trading is stock visibility.
This really comes down to a cost / benefit calculation for suppliers and wholesalers. Could a more transparent wholesale channel with a shift in inventory management from wholesaler to suppliers derive financial benefits to both parties? Would wholesalers save costs if inventory management was moved over to suppliers? Would suppliers move to reduce cost prices if stock and order was flattened out? Perhaps, as importantly, would wholesalers see the benefit in better service levels and parity with the retail multiples? As I said at the beginning of this piece, I have hesitated to write about this but it really is the last frontier for our channel. Maybe the brave move (or inevitability?) is that wholesalers grasp the nettle and take ownership of creating the solution? If it is a given today that suppliers expect to see evidence of the throughput of their product in the supply chain and which outlet it ends up in, maybe it is only a matter of time before suppliers demand to see stock holding as part of terms as well?
I don’t have all the answers on this, but I can see a day where wholesalers’ ERP systems feed real time stock data to suppliers and suppliers are expected to deliver product into depot against that data. To be honest, it is amazing in this day and age that it isn’t the norm. The only question remaining then is how much will suppliers pay for the privilege of live stock data and will it be enough to change behaviour?