Wednesday, September 5, 2012

Packaging and Merchandising Vs. Logistics Efficiency?

Conducting what I call a "walk around" (my wife calls it shopping) in the grocery store this weekend started my mind wandering to ideas about packaging and shelf space.  Why would a logistician be thinking of these stereotypical marketing and merchandising topics you may ask?  The answer is simple:  There is a battle going on in the retail world within companies and it is the battle of the logistician versus the merchandiser.

Just look at the picture below:
A merchandiser probably sees nice colors to attract the shopper's eyes, good shelf space display, multiple rows of the product to dominate the shopper etc.  A logistician sees boxes which are too big for the product which is in them thereby reducing useful cube in a trailer. If you look to the far end of the aisle you will see round and curvy shaped bottles.  The logistician thinks these attract the eye but kill you on cube (both primary and secondary) utilization.  So, the question is who wins?  To this point in my career the merchandiser has won but that is changing with three key changes in the external environment.

First, transportation costs have become so high people are no longer just deferring to the merchandiser.  They really need to make a solid business case why that curvy bottle which kills cube utilization is going to drive sales.  Otherwise, we will move to optimizing cube.

Second, shelf space is no longer such a driver of consumer preference.  When the entire concept of shelf space importance was developed it was the way to advertise to an uneducated consumer.  The consumer "learned" about your product by having the product catch her eye then have her read the box (another more practical reason why boxes are so big - need real estate for the writing and graphics) and this would be a major driver of her buying decision (The old adage there are two moments of truth: One when she decides to buy the product and two when she uses the product for the first time).  However this has all changed.  Many come to the store already knowing what they will buy as they have researched it prior to arriving. Or, if they have not, rather than read the box they will whip out their smartphone and read about it on line (the smart merchandiser will have a QR code on the box so it can be scanned).  This is a mega trend for how people shop which is growing and not shrinking.  The advent of the smart phone means you no longer have a self contained space to barrage the consumer with colors and splash - the consumer can "virtually" leave your space, find the information they want and need, then reenter your space without you even knowing it.

Third, as stores become smaller (especially if you follow the mega trend of consumers moving back to the cities which changes the entire dynamic of retailing) shelf space is shrinking.  With shelf space shrinking you need to figure out how to get your product in front of the consumer, get it to be interesting AND make it small and compact (The tyranny of the "OR" - Good to Great, Jim Collins).  For example, if you make laundry detergent and you only get 1' across on a shelf.  You can take that up with two giant bottles of non-concentrated detergent or you can concentrate it immensely and get 6-8 bottles across.  I personally believe more is better and the the signal the consumer will get is if there is that many on the shelf it must be because people are buying it - perhaps I should try it.   This trend supports and is in harmony with the needs of the logistician.

So, what does this mean for the logistician?  It means you need to get upstream in the packaging design, merchandising and manufacturing of your product.  Get involved in these decisions on the front end and influence the decisions which will meet the needs of the marketer and merchandiser and will also play nicely with cube utilization and transportation costs.  The lowest cost transportation is the transportation you do not use and better cube and better secondary cube (a topic I will address in another post) drives the elimination (not just reduction) of transportation cost.  This means you need to be intimately involved in the Sales and Operations Planning (S&OP) process and if your company does not have one you should lead and develop one.

I have always said the great logistician spends as much time on these topics as they do on working with carriers.  The work with carriers tends to be fun part however this is where the majority of your cost savings will come.

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