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 or Halloween – which mean certain products are in higher demand. 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 allowing their manufacturing operations to run at a much reduced level for the remainder of the year.
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. The net result of these issues is often a financial penalty, imposed by the supermarket on the supplier for failing to deliver as ordered.
In the past, it was typical for these failures to be the result of poor forecasting and an inability to produce enough stocks. Now, problems are less to do with forecasting accuracy and scalable manufacturing capability and more to do with poor visibility.
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.
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 the seasonal trend is often very short term and created by unforeseen opportunities. If the forecast for a weekend is hot, there is an opportunity to increase sales of products associated with outside dining. 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%. 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.
Overall, as a result of continuous improvement strategies, businesses are much better at coping with seasonality. New additions to warehouse management software systems include better support for order planning and the management of raw materials receipts 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. 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 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.