Manufacturers collect a large amount of information from suppliers, stores, merchandisers. But this data helps to evaluate the production (manufacturer) efficiency and benefit the business only when it is correctly analyzed by the company: the necessary metrics are monitored and there is an understanding of what the data shows, together with an answer to the question “why this happened”. This approach to FMCG analysis allows companies to keep track of causes and effects and make the right management decisions.
Today we’ll discuss metrics that help a company to understand its market standing, where it is successful, and where it is worth reviewing some processes.
Out of Stock Rate, On-Shelf Availability, Margin by Product Category and other FMCG metrics to monitor
While communicating with our customers, we have identified five metrics that FMCG manufacturers and distributors are monitoring or strive to monitor on an ongoing basis to ensure increase in sales.
1. Out-of-Stock Rate shows the percentage of an item that is out of stock at any given time. It is important for businesses that the store is able to replenish stockouts at any time and display these goods. It is believed that the lack of goods drives demand. But this statement is controversial in relation to FMCG. If a customer fails to find his favorite brand of milk in the store several times, the customer will switch to another brand, rather than look for it in neighboring stores. According to studies, the out-of-stock (OOS) rate should be kept below 10%.
2. Supply Chain Performance (Delivered On-Time & In-Full (OTIF) shows the quantity of ordered goods that were delivered to stores on time and in the right quantity. By maintaining a track record of OTIF, companies understand the performance of their supply chain. This indicator helps to identify problems with order execution and reliability of suppliers. It is calculated as the ratio of timely deliveries in the quantity ordered to the total deliveries and multiplied by 100. It is recommended to keep this indicator at 90% and above.
3. On-Shelf Availability is the number of goods that customers can purchase in the store at a certain time. There are multiple reasons for out-of-shelves items: inaccurate sales forecasts, poor supply chain performance or logistics, excessive workload of merchandisers or store staff who do not have time to deliver the items to shelves. Out-of-shelves items have a direct impact on sales to the manufacturer, so companies definitely need to monitor this indicator.
4. Sold Products within Freshness Date measures the percentage of products sold within the freshness date of the total number of goods. Expired products are one of the sources of losses for an FMCG company, so it is important to keep track of the products sold within due date and try to increase it. To do this, companies run promotions and offer discounts for goods that may soon become “expired”.
But there is one problem: if a company wants 100% of its products to be sold and have no expired products, it must be prepared for an out-of-stock situation. In the real world, it is almost impossible to accurately calculate the volume of supplies and the time frame within which the products will be sold. Therefore, you have to face a trade-off between the availability of your products on the shelves and sales within their expiration date.
5. Sales Volume and Margin by Product Category will help businesses understand their strong areas. In terms of sales volume, it is important to monitor the plan/actual figures to let you know if you are behind the planned goals or not. This information will help companies identify issues and find their reasons.
Margin by product category helps you determine how much of each euro or dollar made in sales actually stays with your company.
In addition to the five metrics described above, FMCG and CPG companies also monitor Supply Chain Costs, Carrying Cost of Inventory, Average Time to Sell, and other performance metrics.
KPIs must be aligned with strategies
Keeping track of KPIs helps companies to ensure sales control, determine their strengths and weaknesses; understand whether the current strategy is well-performing and get answers to many questions.
Keep in mind that companies evaluate each process: logistics, marketing, sales, etc. In order not to be swamped with an immense amount of data, select key indicators that will demonstrate business performance and meet the company’s goals at the moment, for example, some indicators will be tracked to expand market representation, and others will be tracked to increase revenue from online channels.