Logan Ensign, of Alloy Technologies, Inc., looks at the challenges Ferrero U.S.A., Inc. faced during its first Halloween following its acquisition of Nestlé USA’s chocolate brands.
Ferrero and Halloween. Nutella and stay-at-home orders. Supply and demand. Each of these pairs are closely linked, but the connections are not always immediately clear.
Take the first one. When shopping for Halloween candy, a box of Ferrero Rocher isn’t what most people think to grab. But Ferrero U.S.A., Inc. is not only the distributor of the hazelnut confections; following its integration of Nestle USA’s chocolate business early this year, it also manages iconic brands including Butterfinger, Crunch and Baby Ruth.
So while Ferrero is no stranger to seasonal products, this year was its first with Halloween as a major occasion.
What Ferrero recognized, even before the pandemic, is that there will always be a gap between plans and reality. Something you didn’t predict will inevitably come up, and all the more so with a new product, new market or new occasion. To ensure you’re ready to respond, you need to be able to make fast adjustments, based on real-time information of what’s happening at the point-of-sale (POS), at production and all the pathways in between.
In other words, you need to quickly understand the relationships between demand and supply, at the most granular levels. That’s not easy when you have a supply chain network (and accompanying patchwork of systems) as complex and vast as Ferrero’s. But they recognized its importance and over the past year, have gained detailed, real-time visibility into POS and channel inventory and connected it with internal operations.
This new level of alignment enabled Ferrero’s sales and supply chain teams to make better decisions and become more responsive. Going back to the summer, Ferrero, like many others, was planning Q4. They were trying to answer questions like, “How will COVID impact candy sales?” and “What will the online shift be?” Planners were hard at work forecasting familiar and new-to-Ferrero products, some with a new look and all for which they had limited relevant history.
Instead of relying on orders from past years, they used what was more significant than ever — point-of-sale and ecommerce data from as recently as the previous day. It helped them understand trends over the preceding few months and how consumer demand varied for different items, in different parts of the country, when sold through different channels, to set initial production plans.
In the month prior to the holiday, planners started making adjustments to those same plans. On at least a weekly basis, they looked at current and scheduled shipments, and how they compared to partner-level shipment forecasts. When the two were not aligned, they considered whether they needed to adjust production.
Again, they turned to the latest sell-through to add context and help them decide. Given the most recent data on sales, would they be left with too much unsold inventory or empty shelves if they didn’t decrease or increase production? How should they allocate limited capacity?
Then in the weeks before the holiday, adjustments became more tactical. With lead times, changing production in response to the latest sell-through performance was not a realistic option. However, connecting demand to channel inventory and shipments was critical for Ferrero’s execution teams to anticipate and address risks including:
- Shipping too much or too little to meet demand. Ferrero used a ship–to–consumption metric, which was based on actual shipments, open orders and POS data, to understand if they had enough supply on hand, by product and by retailer. When this ratio fell outside target levels, they adjusted shipment plans to bring them in closer alignment to current POS forecasts.
- Large markdowns post-holiday. Once a shipment landed, sales closely monitored how much of it had sold-through and how that compared to the same time last year. If performance was not as expected, they evaluated if they should reallocate inventory to another DC or start markdowns to move product. These decisions were made within the context of their overall business, analyzing trade-offs like cannibalization of non-seasonal product sales and shipment costs, and using real-time data to lead conversations with customers.
- Stores running out of product. Account teams also used end-to-end visibility to identify specific stores with both no inventory on hand and nothing in the pipeline (shipments in transit or open orders). They brought this detailed insight to retailers and recommended where additional orders were needed, successfully convincing them to push more product by quantifying how much out-of-stocks were costing in lost sales.
Finally, after the event, there’s one more adjustment that will need to be made — expectations. Thanks to real-time sales and inventory tracking leading up to it, it is ideally minimal, but teams outside execution might not have been paying as close attention. Ferrero now quickly analyzes how much seasonal product, in dollars, is still on the shelf and likely to come back in spoils and returns across all their key trading partners.
This information helps leadership immediately understand their liability and plan accordingly. With the holidays so close behind Halloween, speed is particularly critical. Perhaps even more importantly, Ferrero uses it to proactively manage relationships with customers. Showing that they know what’s going on with their business and providing the insight to customers without being asked goes a long way in building trust, even if they can no longer directly change the bottom line.
So what are the key takeaways from how Ferrero managed Halloween 2020 and the upcoming holidays? There will always be deviations from plan that require action, so ensure you have the data and analysis you need to make short-term and real-time adjustments as you learn more information:
- Shipment forecasts to help make early adjustments to plans.
- Real-time POS data and forecasts to minimize out-of-stocks and overstocks.
Furthermore, demand needs to be quickly connected to and understood in the context of supply — current inventory and pipeline. Making proper adjustments requires the full picture, in real-time. If you don’t have all the context, you may make the incorrect move, like advising more orders when you don’t have the product on hand to fulfill it or ramping up production when sell-through doesn’t justify it. And if it takes too long, the opportunity to make changes will have passed.
There’s also an important component of organizational dynamics. I didn’t focus on it here as every company will be different in terms of who needs to be involved to make adjustments happen, but I’d be remiss if I didn’t mention the impact of cross-functional relationships and need to align teams internally as well as externally. My experience with Ferrero is that having a single shared source of truth and emphasizing a few guiding metrics, like shipment-to-consumption, sell-through and spoils $, goes a long way in bringing teams together.
If you’re wondering about Nutella’s status during stay-at-home orders, it has been “selling like hotcakes,” according to Ferrero’s Vice-President of Supply Chain Glenn Lawse. If you want to learn more check out this recent webinar.
Contributor Info Logan Ensign is vice-president of client solutions at Alloy Technologies, Inc. where he works with customers to maximize value from the data, analytics and planning platform by ensuring fast implementation, delivering trainings, sharing ongoing best practices and conducting regular business reviews.