Grocery supply chains

The supply chain in the dry grocery industry consists of the following  

Customers These are people who shop primarily at the supetmar-kets. Their purchase quantities are influenced by store promotions, with the extent of impact of pricing depending on the mix of customers shopping at a store. Typically retail promotions may be accompanied by increased purchases as customers stockpile product to gain a low average price over time. The extent of this promotion activity is dictated by store customer characteristics. 

Store Inventories and Planograms Stores typically decide the amount of shelf space allocated to each item. This layout of products along aisles is called a planogram. Stores maintain similar planograms across locations to get customers to become famihar with their product locations. The store replenishes products subject to minimum order sizes (e.g., cases). Store reorders are filled by the distribution center operated by the store chain or by direct store delivery (DSD) by manufacturers (examples include Keebler for cookies, Frito Lay for chips, and Coke or Pepsi for beverages). 

Central Distribution Center (CDC) The CDC receives orders for products from stores, picks orders, and delivers cases of products to stores. The CDCs goal is to minimize delivery costs and CDC inventories. The CDC times purchases from manufacturers in large quantities (truckloads or railcar loads) to manage inventory costs at the warehouse. 

Manu ctuiteis Manufacturers have to produce to supply the chain buyer purchases over time. But manufacturers often provide temporary price cuts or promotions to entice chain buyers to stock up. The reason is the behef that once stock is pushed to the CDC, stock pressure will incent the retailer to promote the product at the retail store. Fluctuations in the quantities shipped to the CDC are covered either with manufacturer finished goods inventories or by adjusting the delivery lead time. 

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A study by A. T. Kearney [4] tracked the days of finished goods inventory in the grocery supply chain. Imagine that a unit of product is sold at retail, and the lead time it takes for a fresh unit just manufactured at the plant to make its way to the store is recorded. This would require counting the time in inventory at the store, in transit from retail warehouse to store, at the retail warehouse, in transit between the manufacturer warehouse and the retail warehouse, and at the manufacturer warehouse. The estimated values of the days of inventory at each of these locations were twenty-four days at the store, eighteen days at the retail warehouse, six days in transit between the manufacturer and retail warehouse, and thirty-six days at the manufacturer warehouse. The total of days of inventory was thus estimated to be eighty-four days. 

The grocery industry is famous for the use of temporary price cuts as a mechanism to stimulate sales. The price cuts, also called trade promotions or deals, encourage large-volume purchases by distributors and retailers and thus permit the manufacturer to push product downstream. Note that pushing product downstream creates stock pressure at the distributor or retailer, thus providing them the incentive to lower retail prices and push the product to the consumer. Inventory at the consumers home increases the propensity to consume this item. In short, the grocery supply chain uses product inventory to stimulate product movement downstream and thus (potentially) product consumption. 

What actions are needed to address the problems of inter-firm planning and control listed in section 6.1.3 How would you go about orchestrating material movements (for example cheeses, shown on Figure 1.1) across a grocery supply chain ... 

Each cycle occurs at the interface between two successive stages of the supply chain. Not every supply chain will have all four cycles clearly separated. For example, a grocery supply chain in which a retailer stocks finished-goods inventories and places replenishment orders with a distributor is likely to have all four cycles separated. Dell, in contrast, bypasses the retailer and distributor when it sells servers directly to customers. 

Manufacturers have always struggled with the fact that retailers pass along only a small fraction of a trade discount to the customer. In a study conducted by Kurt Salmon and Associates (1993), almost a quarter of aU distributor inventories in the dry-grocery supply chain could be attributed to forward buying. 

Barratt, M. (2003). Positioning the role of collaborative planning in grocery supply chains. The International Journal of Logistics Management, 14(2), 53-66. 

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