Modern Distribution Management, encompassing supply chain network design & logistics optimization, is going through a transformation. See why spatial is key.
Distribution Management at its simplest is the movement of goods from supplier or manufacturer to point of sale. However it also emcompasses numerous activities and processes such as packaging inventory warehousing supply chain and logistics.
The CPG industry relies on effective Distribution Management to ensure the right products get into the rights hands at the right time. What are some of the key challenges that the industry has been facing both historically and this year?
Supply chains have been growing increasingly complex ever since COVID-19 began resulting in manufacturer stock-outs becoming the norm during periods of increased restrictions.
Out-of-stock situations cost CPG retailers more than $47 billion annually (source). Yet efforts to reduce out-of-stocks often creates over-stock situations costing retailers even more. Consumer reaction shows 37% would buy a different brand (source) a nightmare for CPG firms trying to build brand loyalty.
Competing with E-commerce Giants
Unsurprisingly e-commerce as a percentage of sales in wholesale distribution has been on the rise for more than 20 years. Most analysts agree that within a few years and accelerating due to the COVID-19 pandemic Amazon will be the largest distributor in North America.
Large online distributors and B2B e-commerce companies have strong buying power big budgets and solid marketing campaigns in their favor.
Changing Behaviors & Expectations
The continued growth of e-commerce has been changing consumer behaviors for some time and significantly so within a short period due to the impact of COVID-19. What we spend money on and how we spend it has changed. For example whilst there has been a 10% drop in supermarket visits the take home grocery market is experiencing growth of 13% (a market which normally does not see double digit growth) and how much each consumer spends per trip has increased 24%.
Consumers have been increasingly information-enabled and as clients in the distribution industry expect the same granularity they have expectations that transport services keep them fully informed throughout the entire process. With increasing amounts of accessible data across all areas of distribution clients now demand very precise expectations.
In the face of these challenges CPG/FMCG companies in the bricks & mortar space face a constant battle to increase their market share & gain more retail shelf space.
Pricing & brand may be important but robust Modern Distribution Management systems & Supply Chain Networks are critical in providing a cost advantage - which is where spatial analysis comes in.
So how can this be achieved and how can Modern Distribution Management adapt in the new normal?
Ensuring Product Availability
Supply and demand shocks during the COVID-19 pandemic caused by panic buying and consumers stocking up on essential products have put immense pressure on replenishment models which can be notoriously manual and lacking in sophistication.
Instead of relying on such manual methods new sources of data such as human mobility can be used to analyze the change in the number of visits to a given retail location and therefore be able to respond more quickly to fluctuations in consumer demand.
In order to estimate in which areas there are more grocery stores more likely to run out of products due to having higher customer visits than normal we looked into which grocery stores in New York City experienced an increase or decrease in the number of daily visitors since the beginning of March during the peak of lockdown measures.
E-commerce OD Matrices
"How can goods be distributed from supply points to demand points at the lowest possible costs?" drives many logistics optimization projects.
In the case of a retail company tasked with shipping products to thousands of addresses cross country this requires a different approach to that undertaken for supply chain network design.
We looked in detail at the process of building an Origin-Destination Matrix and corresponding Logistics Optimization Algorithm to solve this complex problem with the result as seen below.
Insights from First & Third Party Data
Smaller and medium sized CPG retailers utilizing third party sales and distribution platforms can automatically visualize first party customer data yielding market insights that are instantly enriched with demographic data allowing them to create an informed geomarketing strategy.
Anagraph Montreal-based developers and consultants built Geometric to serve this purpose and allows retailers using Shopify the ability to use geomarketing solutions previously only accessible to larger enterprises due to cost and complexity.
Demographic data can give insights into customer expectations with analysis of social media sentiment allowing us to delve into fast changing behaviors. A good example would be the pet adoption boom in the US that has never been seen before.
With so many new pet owners it’s important that pet care brands understand where their target audiences are located so that they can make strategic distribution decisions. By accessing spatially-based behavioral segments such as dog lovers animal advocates farm culture and more companies can visualize where their in-market consumers live relative to where their products are sold.
Optimizing Supply Chains
To show how Location Intelligence can impact supply chain network design we analyzed the supply chain network for Publix a leading grocery store chain in the southeastern United States with primary operations in Florida.
The full analysis is outlined in a separate post with a quick summary available in the video below. For Publix the analysis resulted in:
- 15.7% decrease in distance driven
- 6.4% decrease in overall delivery time
- 9 fewer routes
As we’ve seen the use of modern accurate and in some cases real-time datasets to enrich existing data can allow for insights not previously possible or excessively time consuming. Alongside footfall traffic and mobility data other key questions within Modern Distribution Management can be answered including:
- Financial - Where should I concentrate the launch of a new product based on credit card spend?
- Demographic - Where are ideal locations for a pop up site based on the target audience of my product?
- Housing - How can I ensure my products match the needs of the area?
- Road Traffic - How can I find optimal routes at certain times of day to help my fleet avoid traffic and high toll prices?
- Points of Interest - How can I get an accurate analysis of the number of suitable retailers for my product in a given location?
- Environmental - How does the weather influence sales of my product?
- Behavioral - What’s the relationship between social media behaviors and sales of my products?
Modern Distribution Management relies on getting the right product to the right store at the right time.
Leveraging Spatial Data Science can allow you to save up to 75% time on data discovery reduce costs by finding all the relevant spatial data and uncover insights to support better decision-making.
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