Inventory Management of Fresh Products

What are FRESH products?

Having the right product at the right time and in the right amount is the mantra for a successful retail business. Especially when it comes to perishables (FRESH).

FRESH products are goods with a short shelf life (residual shelf life).

Key features of a FRESH product

Examples of FRESH products are: milk, meat, fresh fish, convenience foods, pastry, cakes, and other products. All of them have the following features:

  • shelf life (residual shelf life) up to 5-7 days;
  • frequent deliveries of goods, at least 1-2 times a week (usually more often);
  • as a rule, these are everyday goods, which are sold in a large number of units per day (tens, hundreds of units);
  • usually direct deliveries from the supplier to the store are provided for perishable goods.

Discounters, convenience store chains and online players admit that the category “Fresh” is invariably a key battleground for customer loyalty.

Due to the fact that fresh products make up 40% of the income from groceries and one third of the value of goods sold, obtaining the right to retail fresh products trade is more important than ever.

Despite this, effective management and operational control of goods with a limited shelf life is still seen as a problem for many retail chains. Short shelf life, volatile demand, often indefinite delivery times — all this complicates the management process. Networks also have to make difficult trade-offs with suppliers and imposed conditions: large order - as a result, the goods are illiquid; not enough goods ordered - the company loses sales, undermines customer loyalty. How do you manage inventory in such conditions and how does the manager calculate the required quantity of goods?

ABM Inventory has developed a special algorithm for calculating stocks and orders for FRESH goods for managing products with a limited shelf life.

Targeted approach to the calculation of FRESH goods stocks

The basic approach that can guide the formation of stocks and orders to the supplier of FRESH goods is the Service Level.

The goal in this approach is to meet demand with a given accuracy. That is, Service Level = 80% means that out of 100 buyers who came for a specific FRESH product, 80 will find it on the shelf and buy it. At the same time, the profitability of sales of a particular product is not the main goal, a substantial percentage of write-offs and non-receipt of the maximum possible profit are possible when selling this product. The high level of this indicator increases loyalty of a buyer.

Briefly about the features of the algorithm for calculating stocks and orders of FRESH goods

Regardless of the targeted approach, the algorithm for calculating stocks and orders for SKU (FRESH product) is based on statistical sales forecasting. The forecasting algorithm uses modern methods of mathematical statistics. The basis for it is the information obtained as a result of data exchange with the application user:

  • sales of this SKU;
  • sale at a loss and / or transfer of goods for processing;
  • cancellation in case of damage and expiration;
  • standard terms of the residual validity of the goods on the day of their delivery.

As a result of statistical processing in the ABM Inventory system for each SKU, the following indicators are calculated:

  • ADU (average daily sales);
  • coefficient of sales by day of the week;
  • other necessary data.

Next, the application, according to the selected targeted algorithm and other settings, calculates the required inventory level and, taking into account the existing supply schedule, forms an order to the supplier.

Fresh

Main tasks and steps in the implementation of the FRESH product service

Adding of FRESH products to service goes through several stages:

  1. Download to the database of statistics on goods of the specified group for a period of time not less than a month.
  2. Determine the targeted algorithm for each SKU and its corresponding targeted parameters, including:
    • service level ratio (for Service Level);
    • residual shelf life;
    • elasticity of demand of days of the week;
    • average daily sales.
  3. Enter other standard settings for SKUs, for suppliers, order schedules, etc.
  4. Test and compare results with the existing method of the user.
  5. Make adjustments and final implementation.

Outcomes

The results of the implementation of the FRESH algorithm and the addition of FRESH products to the service are:

  • optimization of stocks and supplies for these products, according to the selected targeted algorithm;
  • automation of orders to suppliers;
  • convenient control of sales, stocks, profits for these products;
  • the ability to respond quickly to changing market conditions.

ABM Inventory provides a strategy for effective perishables management, thereby stimulating growth in sales and profits while reducing overstock.

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