Seasonality of demand is both a challenge and an opportunity the food and drinks industry needs to manage. Thanks to improved forecasting techniques and management, often supported by technology, seasonality is becoming less of a threat to business performance and more of a commercial opportunity. Indeed, many companies are demonstrating that when the right Warehouse Management System (WMS) is employed, they have the ability to cope with peaks (and troughs) in demand, using ‘what if’ scenario planning to monitor the impact of production increases on logistics requirements.
Seasonality affects the food and drinks industry in two ways – there is inflexible and flexible seasonality to manage. Inflexible seasonality arises due to calendar fixtures – events like Christmas, Easter or Halloween for instance – which mean that certain products are in higher demand, in addition to existing demand for the usual food and drink items consumed. In contrast, flexible seasonality arises because of unforeseen events such as sudden hot or cold weather creating extra sales opportunities.
Some businesses cater to meet the demands of inflexible seasonality by producing vast quantities to satisfy the seasonal demand and then allowing their manufacturing operations to run at a much reduced level for the remainder of the year. Artisan pork pie producers are one obvious example, capitalising on the party or picnic seasons and here inflexible seasonality is less of an issue for warehouse operations.
Other kinds of food and drinks businesses need to combine business as usual production levels with the manufacture of additional seasonal products and this is where logistics problems can arise. One common problem occurs if the business lacks the level of visibility needed to understand the impact of increased manufacturing throughput on warehouse capacity. For example, our work with a variety of food and drink manufacturers has brought encounters with companies who experience a range of service issues arising within their logistics operations and warehouse processes. The net result of these issues is very often a financial penalty, imposed by the supermarket on the supplier for failing to deliver as ordered. Usually, even when retailers share the forecasting risk, if it’s not accurate or problems ensue, they don’t take responsibility – it’s always the manufacturer’s problem.
In the past, it was typical for these failures to be the result of poor forecasting and an inability to produce enough extra stocks. Now, problems are less to do with forecasting accuracy and scalable manufacturing capability and more to do with poor warehouse visibility. So although they get the demand projections right and increase production to make enough product, problems occur because the warehouse cannot cope with the extra flows. The business lacks the right level of visibility to anticipate extra resourcing requirements or experiences other constraints due to an inadequate supply of vehicles or containers. Again, the knock on effect of this problem can be a penalty for non-delivery imposed by the retailer, in spite of them having produced the right quantities based on forecasts.
New, more advanced WMS solutions complement the forecasting capabilities of manufacturing software and allow producers to very accurately forecast the impact of increased production levels on their warehouse operations. This enables contingency plans to be put in place to ensure the necessary extra warehouse or transportation capacity is available, thereby avoiding non-supply penalty scenarios.
Managing flexible seasonality also requires the manufacturer to rely heavily on the capabilities of a WMS and perhaps even more so than when dealing with inflexible seasonality. This is because here, the seasonal trend is often very short term and created by unforeseen opportunities. Weather is an obvious example. If the forecast for a weekend is hot sunny weather, there is an opportunity to increase sales of products associated with outside dining – meats, drinks, ice creams, charcoal and obviously, barbeques themselves. The key to success is being able to limit the risk of forecasts being inaccurate and potentially being stuck with an over supply of these items. This requires extreme flexibility and the ability to very quickly switch production priorities according to Met office forecasts.
Being able to capitalise on flexible seasonality opportunities is where a good WMS can also have a huge impact, by enabling accurate logistics scenario planning to support a very flexible manufacturing operation. Many large food and drinks manufacturers now accept that forecast accuracy levels may only ever reach 40 – 50% and are unlikely to get any better. Rather than prioritising achieving better forecasting, they have instead invested in improved manufacturing flexibility and reduced manufacturing response times, increasing batch capabilities so that last minute orders can be fulfilled at very short notice, sometimes within a few hours.
Achieving this has required fundamental manufacturing process changes, for example, adding ‘uniqueness’ to the finished goods at the last possible stage in line with demand projections. It has also required investments in the right WMS capabilities to support flexible manufacturing operations, for example, having the ability to store special ingredients needed for particular seasonal product variants or plan for extra resources to cope with the additional throughput expected over a hot weekend.
Overall, as a result of continuous improvement strategies, businesses are much better at coping with seasonality, responding to the opportunity it creates and predicting the right outcomes. New additions to warehouse management software systems include better support for order planning and the management of raw materials receipts right through to improving visibility of the intake plan. In the past a WMS might have supported operations by producing a list of purchase order numbers with details of when items were due. Now it can highlight exactly what the logistics resource requirements are. For example, showing how many forklift movements are needed to handle the ingredients and finished goods. Or what staffing and other machinery resources are needed. So whereas in the past, seasonality would have been regarded as a threat, food and drinks manufacturers taking advantage of the latest technology can now view it as a really good money making opportunity.
Author: Mark Wilkinson, Consultant at Indigo Software. Mark Wilkinson has been working in manufacturing logistics for over 15 years and with food manufacturers for over 5 years helping them improve warehouse operations and implement WMS technology to reduce costs and risk.