Maximizing Inventory Efficiency in the Grocery Industry

For grocery retailers today, effective inventory planning and optimization play a vital role, given that inventory and associated carrying costs represent significant expenses. 

To ensure success, it is imperative for retailers to efficiently coordinate multiple departments, working together to achieve the right product mix for selling locations and end consumers. By doing so, they can avoid both stockouts and overstock situations within the supply chain. The key to achieving this success lies in leveraging a digital ERP.

In this article, we will discuss four important areas to streamline grocery inventory management for maximum efficiency, and how a digital ERP system can help in this process.

1. The Power of Planning: An effective inventory management process begins with a robust planning approach. By using a digital ERP system, grocers can efficiently forecast and project inventory levels across various merchandise and location hierarchies, based on historical data and the latest trends. This enables them to plan product assortments, create purchase orders and generate replenishment orders. Ultimately, a digital ERP system simplifies the planning process, leading to improved inventory management for grocers.
   
   For example, retailers can set targets based on inventory turnover or days/weeks of supply, allowing them to develop product assortments at a detailed level. These targets are then balanced against specific location clusters, which can encompass selling locations, customer groups or wholesale customer segments. Once the assortment plan is finalized, it serves as the foundation for purchase orders and replenishment orders to ensure timely restocking. Vendors can also leverage these plans to anticipate the necessary resources for manufacturing and shipping, aligning with the retailer's unit receipt plan.
    
2. Accurate Master Data - The Foundation for Success: Tying all of this together is your master data. Vendor lead times, pack sizes, service levels and fixture definitions play a vital role in determining the flow of inventory and anticipated delivery dates. Retailers must pay attention to these details to optimize inventory management effectively. 
   
   A seamlessly integrated digital ERP system plays a vital role in maintaining accurate master data for grocery retailers. By centralizing data management and enabling real-time updates, a digital ERP ensures consistent and up-to-date information across the organization. This eliminates data discrepancies and provides a single source of truth for all stakeholders. Real-time updates ensure that changes to master data are immediately reflected, minimizing the risk of outdated or conflicting information.
   
   Further, a digital ERP can be integrated with external systems, allowing for automated data exchange and validation. By leveraging these capabilities, grocery retailers can maintain accurate master data, enabling efficient inventory planning, order fulfillment and enhanced operational performance.
    
3. Pre-Allocation and Efficient Flow of Inventory: Allocation and visibility into inventory flow is crucial in ensuring smooth operations and minimizing stock issues. For example, when an order is received, merchants can pre-allocate specific unit quantities for delivery to selling locations. With a robust digital ERP solution, retailers can define business rules for product allocation based on fixture definitions, sales forecasts and supply goals. As the delivery date approaches, vendors can provide an updated EDI advanced ship notification (ASN) with the quantities scheduled for delivery. Merchants can then adjust the pre-allocated quantities, based on this information. In some cases, they can also send direct ship instructions to selling locations via the EDI purchase order document for drop shipments. By using EDI capabilities and ERP's pre-allocation features, retailers can maintain smooth inventory flow, reduce excess safety stock and gain complete visibility into the order cycle.
    
4. New Product Push and Allocation Methods: When it comes to introducing new products into the supply chain, pre-allocation is essential in the initial push to selling locations. In such situations, retailers can leverage a digital ERP to send a portion of the order directly to stores, using cross-dock instructions. The remaining inventory can then be stored in the distribution center, awaiting future allocation based on the sales velocity of the new product across the supply chain. For example, a grocery retailer introduces a new type of organic cereal. The retailer uses its digital ERP system to send a portion of the initial order directly to select stores where there is a high demand for organic products. The remaining inventory of the cereal is kept in the distribution center. As the cereal gains popularity and the sales velocity increases, the retailer can allocate more quantities to other stores, based on factors like their sales volume, min/max quantities, shelf capacity and desired weeks of supply targets.
   
   With a digital ERP, grocery companies can also account for the shelf life of products in their replenishment algorithm and order proposals to effectively manage inventory, optimize sales, and minimize stockouts or excess inventory situations.