FMCG distributors are critical actors in the global supply chain. They manage a large variety of products and high levels of inventories and assets, and help ensure retailers deliver to their customers. To be profitable, we must control inventory costs, have effective facilities allocation, and have extremely well-organized logistics. Let’s look at how the insights from demand planning help us in our capacity planning, providing effective inventory management and order fulfillment.

What We Must Achieve In Capacity Planning

Facilities allocation: Deciding the required facilities, i.e. the space of any facility or zone needed to satisfy the anticipated flow of customer orders. It must support any projected higher inventory levels for each product.

Avoiding stockouts: Supplying warehouses to avoid stockouts with optimal frequency to ensure our products are available in our customers’ stores. Supplying these warehouses should take into account anticipated customer demand for each product, promotional campaigns, urgent orders and returns.

Performance of the order-to-cash process: Optimizing resources and reducing the order cycle time to satisfy the actual and future customer demand – in full, on time and without errors. Variables which must be monitored here are the product demand and the characteristics of the daily orders flow, either weekly or monthly.

Understand Demand Variables To Better Plan Capacity

The secret of capacity optimization for distributors is to know customer demand, seasonality, promotions, supply constraints, financial aspects (assets, cash etc.) and delivery regulation (e.g. OTIF), from a short-term horizon to a long-term horizon. This comes from the demand plan.

Inventory management requires planning for warehousing space, resources, manpower and logistics. For this, we need demand planning to know likely future sales.

How We Use Demand Planners For Better Inventory Management

FMCG products are characterized by a high demand variability: seasonality, promotions, new product demand inaccuracy, and urgent and specific orders. So, the order point method is recommended in this situation to manage transfer to the picking warehouse. It has three parameters: Safety Stock, Order Point and Maximum Quantity.

Demand planners give us the following to assist us with this:

• Products families based on demand volume and demand variability,
• The Demand plan which contains quantities of each products per month,
• Other information including shelving measures and zone spaces.

The maximum quantity is defined as the maximum storage capacity of the shelves satisfying the demand plan. In order to determine the maximum quantity more precisely, an optimal distribution of the products in the shelves can be determined, taking into account the relative ratios between the products (importance in terms of demand and volume of the box) and the maximum volume of the shelves. Linear programming can be a good way to resolve this problem, by using the Solver tool in MS Excel.

The order point policy aims at initiating replenishment as soon as an order point is reached (including the safety stock), with a quantity that cannot exceed a predefined maximum. ERP systems can simplify this policy and provide the following complementary functions:

• Real-time tracking of product volumes in their locations, based on the calculation of the updated inventory after each internal move.
• Alert notifications will be sent in case of reaching or exceeding a pre-set order point.

Scenario Planning For Order Cycle Process Optimization

In the order cycle process, orders can have significant waiting times during the picking operations. These long waiting times mean that operators will lose the opportunity to serve other customers (downtime) and often have to work overtime. In general, the problem is perceived as a lack of facilities and workers, which makes sense as managers have to control the costs associated with these. Therefore, managers should perform scenario planning in order to find the strategy that will optimize the order cycle time and overcome the problem of overtime while increasing logistics capacity.

Demand planners should know when customer orders are likely to come in for a certain period of time, and the demand we will experience for products in each zone in the warehouse. The what-if Analysis can use different performance levers: the inter-arrival time of customer orders, the waiting time for picking, and the number of resources.

Analytics can have a significant role in optimizing the process. The following information helps us translate the demand plan to a supply and capacity plan (as well order arrival policy): Picking Time in each zone of the warehouse, number of lines per order in each zone, and probability that Picking-List visits each zone.

Demand Planning Process Has A Great Impact On Capacity Optimization

As we see, the demand planning process has a great impact in optimizing capacity for FMCG distributors. Accurate demand forecasts and a deep knowledge of customers’ behaviors, and even demand forecasts at the zone level for the warehouse, are key factors in optimizing the supply side, along the with the support of an ERP system and analytics.

Medicines must be delivered to patients at the right time, with the required quality, and at the right price. The consequences of stocks outs and poor forecasts are more severe in this industry so distribution, inventory management and S&OP are things you need to get right. But in this market characterized by volatility, high competition and unique industry dynamics, it is not easy. Here’s where the S&OP process can be a solution to balance demand and supply, better anticipate demand, minimize supply risks and reduce costs.

Pharmaceutical Products- Way More Than FMCG

A pharmaceutical product or medicine is characterized by the fact that it is a common consumer good. It’s therefore subject to a market forces and financial and economic constraints. But it is also provided to the sick, which make it an essential vector of healthcare services. The distribution of pharmaceutical products is similar to other products, but in this industry it is uniquely important because the way they are distributed has direct effect on the health of the population. Therefore, ensuring availability to the consumer is critical.

The Pharmaceutical Wholesaler-Distributors Is A Critical Actor In The Pharmaceutical Value Chain

Pharmaceutical distributors have a key role in the pharmaceutical Supply Chain, as it represents a link between laboratories and pharmacists. They are supplied by the pharmaceutical products, which are managed, stored and distributed to the pharmacists. Distributors manage a wide range of products and know their evolution in the market.

On the one hand, distributors have a limited choice of suppliers. On the other, they suffer from competition from other distributors. Therefore there are no exclusive relationship between distributors and pharmacists. The result? Demand becomes more difficult to anticipate.

The activity of pharmaceutical distribution is characterized by a strong barrier to entry, which makes it very delicate. Laboratories set delivery quotas for certain products, which represent the market share of the distributor for the previous year. This makes the creation of new distributors more difficult and reduces possibilities of gaining market share.

Supply Chain Efficiency Is Crucial To Maintaining Profit Margins

Here in Algeria, the government imposes purchase prices, sales prices and margins, so price competition is limited. Distributors must provide a high service quality and be able to control costs to save the profit margin. The latter means that distributors must pay keen attention to Supply Chain optimization and inventory management. Key factors for us are:

• Managing a large stock of products (over 90% of products) and ensure their availability
• Ensuring on time delivery and delivering within 24 hours
• Delivering high quality orders and products
• Minimizing stock outs and obsolete inventory
• Cost saving and investment in analytics and IT

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The S&OP Process, Key To Success In Pharmaceutical Distribution

As discussed, Pharmaceutical distributors must ensure efficiency and effectiveness in this market characterized by demand volatility of products, competition and a high risk in the supply side. Logistics capacities and inventory cannot respond to demand efficiently if there are errors in order deliveries, stock gaps and delays. This impacts financial performance.

To put supply and demand in synchronization, we must implement the S&OP process. The objective is to integrate the demand plan, the supply plan, and sales plan into one consensus plan. In order to implement the S&OP process, distributors have to:

• Establish a culture of collaboration between all the functions, with a continuous improvement vision
• Win the commitment of senior management to set performance challenges and resources
• Appoint the right person to lead the process, who has the ability to involve and motivate others
• Implement methodologies and demand forecasting software and focus on improving forecast accuracy at family and product level
• Manage supplier relationships by producing an accurate supply plan within the appropriate time horizon, with optimal quantity, discounts and payment deadlines
• Set a consistent list of KPIs to help analyze previous periods and upcoming planning objectives

Pharmaceutical distributors should think about including other players in the pharmaceutical Supply Chain. The first step is to collaborate with pharmacists to exchange information about demand and inventories. The second step is to provide laboratories with the demand and the purchasing plan, and make sure all the stakeholders in the pharmaceutical chain have aligned goals.