What Sales Promotions and Product Range Extension Mean for Your DC

Sales Promotions and Product Range Extension are two key measures of modern-day marketing that pull warehouses in almost opposite directions. Nevertheless, both activities are here to stay. The comparison of characteristics highlights the inherent disruption potential:

Sales Promotions

  • High volume
  • Small number of SKUs
  • Short life
  • Simple

Product Range Extension

  • Low volume
  • Increasing number of SKUs
  • Long life
  • Complex

 

Sales Promotions Versus…

Sales promotions to get customers into stores

They are used during a pre-determined, limited time to increase or stimulate consumer demand. The goals are to pull in consumers, get rid of obsolete stock or introduce new products. In practice they create large unpredictable volume over a short period. The traditional way of dealing with this would be to estimate demand, then build up stock over a period prior to the promotion. But nowadays retailers have much closer links with producers so manage the whole chain much better.

If the supply chain is visualised as a stream then the traditional method could be visualised as having a pool with a sluice gate at the end. The pool fills up as production build up stocks then these are released and sold over a short period. More recently the production is flexed to suit the demand and this could be visualised as a wider stream without the need for a pool.

The scale by which companies use promotions can be seen from information published on UK-based just-food.com on 3 May 2011. “For April 2011 it was reported that Tesco had the highest proportion of products on promotion, with some 38.8% of its range, against 34.7% last month. Asda had the lowest proportion of products on promotion, with 22.9% this month, against 23.5% last month.”

If we look at a product that is a normal stock item, having a sales promotion the overall effect to the supply chain is that higher volume passes through for a short period. This can be enabled by changing the units the product is transported in, for example by the use of merchandising units that are taken directly through the supply chain to the point of sale. If sufficient volume then, direct delivery from manufacturer to store may become viable.

…Product Range Extension

Increasing amount of products in retail stores

It enables one-stop-shop, up- or down-market expansion (value or premium range) and attempts to maximize income from customers. This generates greater complexity to the business as there are more products to manage. The increased range will require display space. If the retail sales space is the same then this additional space is created by taking space from existing lines and reducing still further the volume of stock per product in the retail store. To enable service levels to be maintained this will result in more frequent, but smaller replenishments per product.

Two recent examples from manufacturers are:

  • January 2011, Coca-Cola Enterprises Ltd extended its range of Relentless energy drinks with the launch of a new variant, Libertus.
  • April 2011, Nature Valley announced that it is extending its range of crunchy cereal snack bars with the launch of its new Crunchy & More range.

If we look at a typical range of F&B items provided by retailers, the overall impact is felt most by the DC and picking operation although instore replenishment would also be adversely affected. Picking smaller quantities of items per order line across an increased range may now mean that the existing strategy of, for example, pick-by-order is no longer efficient. Both batch-pick and sort as well as pick-by-product may now result in a reduced headcount. There may be insufficient space in the pick face to present all the products. Even if there is sufficient space the pick path becomes longer and more inefficient. Storing product in totes or trays rather than on pallets would provide an overall benefit as this then enables use of the latest automation to provide dynamic pick locations.

Designer’s Challenge

Both actions change the overall product and stock profile with Promotions increasing the volume for a relatively small number of products whereas Product Range Extension has the effect of lengthening the tail of the stock profile. What will happen in the future nobody knows exactly, but taking these 2 strategies into account when designing a DC or warehouse is vital. The winners will be those companies whose crystal ball allows them to predict and build in the amount of flexibility for the future and yet still retain an efficient operation for today’s requirements.

2 Responses to What Sales Promotions and Product Range Extension Mean for Your DC

  1. Hi,
    Just to say that it was enjoyable to read the article. These two ways of marketing have indeed become a big part of our everyday life in the fresh produce industry, particularly sales promotions. They have therefore become an intrinsic driver of our supply Chain strategy, as some lines exist in the market place almost entirely as a consequence of it.
    Our business specialises in produce with very short shelflife, hence we have made of the postponement strategy a vital part of our business. Your article mentioned that generally stocks are built up in production; however our case is slightly different. We build raw material stocks; hence we push the “sluice gate” as you call it, to almost its limit in order to deliver those high volumes in a very short time. We believe this is the best way we can ensure top quality on the shelves of our customers. As everything is packed last minute, any potential issues with deterioration on the material, it’s managed in detail just before it leaves our facilities. As you can imagine this is not a simple task and therefore needs an incredible agile production line which can be packing 10 times more in some days than others.

    • Andrew Blair says:

      Very interesting comment which reminds me of a project we worked on 2 years ago with a similar issue.
      A manufacturer was supplying to several retailers each demanding slight variations in pack size, quantity, labelling or packaging. The problem the manufacturer had was he had to forecast demand for each individual retailer meaning that waste was high. One thing you can guarantee about forecasts is that they will be wrong. Our concept to reduce the waste was by implementing a postponement strategy and packaging at last minute once demand was known, which sounds similar to the one you are using. We proposed storing the raw material stocks in plastic totes then using high speed miniload cranes to store and retrieve to various packaging lines as required. We suggested that a base level of each of the products by retailer was always produced as this was “guaranteed” requirement and that the postponed element was used to tailor to suit on the day. In this way we kept the number of high speed packaging machines to a minimum.

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