Making the Case for Efficiency

Few in the food retail industry would dispute the assertion that collaboration, or the notion that stakeholders along the value chain should work together and share information, is good for all. But ask the same retailers and manufacturers about the state of collaboration within their own organizations, and you'll likely hear they have much work to do to take full advantage of its benefits.

Cost Breakdown (inclusive of additional FRD expenses) COMMENTS • 20% of the manufacturer's FRD incremental cost is not passed on to the retailer • However, some retailers feel it's indirectly included in the cost of goods Source: Capgemini Consulting analysis; Interviews with leading manufacturers and retailers.

A recent collaborative study among CPG manufacturers and retailers measures and analyzes the effectiveness of Floor-Ready Design (FRD) merchandising strategies to determine where supplier/retailer collaboration could optimize the process. Recent trends, such as the increased use of retail-ready packaging and retailers' moving to smaller orders and more frequent shipments, also were considered.

"We've seen a lot of stellar examples of one-on-one collaboration. Companies use joint business planning tools very effectively amongst themselves and their primary customers," says Vishal Patell, senior director, marketing strategy at CHEP, a pallet manufacturer that has examined the effectiveness of floor-ready displays in the study with Capgemini Consulting. "But what we're trying to establish is multiparty collaboration. In this case it's not only helpful, it's almost required to come up with a solution that adds value to the entire supply chain."

Because the need to manually stock products is eliminated with FRDs, retailers view the displays as a way to reduce labor costs. Manufacturers, on the other hand, are looking at the strategy as a way to boost sales. But there is common ground to be found between these seemingly disparate goals. By collaborating, retailers and manufacturers can optimize the FRD process so that both can reap its potential benefits.

REPORTED FRD Challenges Source: Capgemini Consulting

"Collaboration must grow to create value. Retailers are working on such tight margins that any opportunity to cut costs makes an impression," says Tom Wrobleski, vice president of consumer markets at Capgemini. Six retailers, including Publix, Save-a-Lot and Meijer, and three food and beverage manufacturers, including PepsiCo and Nestlé, participated in the study, which identified seven critical challenges adversely affecting FRD merchandising efficiency:

Ergonomics: Most FRDs rely on manual labor to build, which carries a risk of injury from heavy lifting, repetitive movements and exposed cutting blades.

Sustainability: Though shipping cases are baled and recycled, manufacturers report they write off up to 10 percent of their FRD corrugate annually because of handling and storage damage, expiration of promotions or unfulfilled commitments by retail partners.

Shopability: Consumers report they prefer displays that can be accessed from all four sides and from the top down. Promotions using FRDs rarely sell difficult-to-reach product. As a result, workers need to reshelve the unsold product, counteracting any savings in labor the display format affords.

Structural integrity: Though FRD designers consider the protection that displays will need during warehousing, transportation and sell-through, damage to either product or display can occur at any point.

FRD Custom Costs: Retailers looking to create a competitive advantage are requesting custom configurations for displays more frequently. Each custom design comes with added costs to design, approve and track.

Lead time: Retailers are requesting deliveries faster than the typical eight- to 12-week lead time, but manufacturers say managing FRD builds is a labor-intensive process that's difficult to shorten. By sharing information, both parties can work together to set expectations accordingly and identify opportunities to take time and cost from the process.

Forecast accuracy: Since products on display often have the same SKU as open-stock items, isolating sales due to FRD merchandising is a challenge, making it difficult for manufacturers to create demand forecasts for FRD promotions.

The study also yielded the following solutions:

FRD placement: Place displays in locations that attract attention without obstructing shoppers' ability to navigate the store. Products should also be front and center on the display.

Product assortment and availability: Keep FRDs well stocked and offer variety, such as different flavors, to improve on the display sell-through and performance.

Pricing strategy: Use pricing strategies, like buy-one-get-one-free offers, in tandem with FRDs, to communicate value rather than simply a price reduction, the study says.

Promotion timing: Plan FRD promotions around special events, holidays or during nontraditional occasions, such as disaster preparedness.

FRD format: Offer formats maximizing cube utilization and matching the individual retailer's value proposition. For example, offer full pallet displays to a big box retailer.

The study authors hope to foster additional collaboration around retail ready packaging so that the process is efficient, safe and beneficial for all involved.