Every turn of supply chain planning comes with optimizing for the atomic unit that you move along your chain. You know that you typically sell eaches (i.e. individual SKUs) and manufacture eaches; however, in between these steps, the goods moved at each stage are typically packs of SKUs, whether that is a container from your factory, pre-packs or case-packs in your warehouse and to your stores. So, what are all the different concepts that are involved?
Minimum Display Quantities
Let’s start with the end result, which is the Minimum Display Quantity (MDQs). MDQs (aka Minimum Presentation Quantity) are the size runs (i.e. quantity by size) that that a store is intended to carry at any point. An MDQ Profile could look like folling:
As you can see, in this example, we’re choosing to ensure that we always have the above range of sizes in stock, depending on the store type. How we make this decision might be based on a desire to carry fringe sizes in certain stores or could be purely based on historical demand that we’ve seen. Also important is the presentation quality and what kind of a product run makes it more aesthetically pleasing in the store.
Regardless of how the MDQ profile is created, an allocators goal is to make sure that all the stores with an MDQ profile is always carrying at least the minimum quantities for each of the designated sizes.
Pre-Packs (also known as Carton Quantities)
Once we establish the MDQs to have in the stores, we will figure out how to establish those inventory levels. One can choose to just send eaches to the store, i.e. make decisions SKU by SKU to ensure we’re carrying the right size mix in the store for each choice we’re carrying. This is certainly the most flexible option; however, if you have too many stores, you can imagine that there will be a lot of handling overhead in the distribution center to make sure that we’re shipping out the appropriate eaches. Also, in some cases, the distribution center might not be able to handle eaches, but is better in handling packs of goods.
This is where pre-packs come in. Pre-packs are multiple-sizes of a particular choice added in a pack for inbound fulfillment to DC and outbound to stores. A typical pre-pack for a shirt could look like (1 SM, 2 M, 2 L, 1 XL) making a pack of 6 eaches. This ensures that the unit that we’re moving around to the stores, especially for initial product delivery, is in pre-packs, so that we’ll ensure that each of the stores will get the right size runs. Typically initial allocation is done in pre-packs; however, retailers then break their remaining pre-packs in their warehouse and start shipping eaches to the stores to maintain MDQs in their stores.
Lastly, in cases where we are sending many units of a single SKU to a store, we’ll get more efficiencies in packing these together. An example of this is where we are shipping bottles of a beverage, if you’re shipping goods to Walmart for example, you’ll be sending these in a case-pack of 24 or 36 to make handling easier. Case packs are very common in fast moving consumer goods (FMCG), beauty, etc; however, not as common in apparel.
Large retailers typically demand fulfillments from their suppliers in case-packs and suppliers typically have to conform to these expectations. Alternatively, some suppliers only fulfill their orders in case packs. In most cases, case-packs are not opened (or broken) until the pack arrives in the store, and in some cases like warehouse retailers (e.g. Sam’s Club, Costco) goods are sold to the end consumer in case-packs.
Summing it Up
As you can see planning out supply chain and allocation is typically more complicated than just planning out the demand for the eaches, and this can get overwhelming as the number of SKU x Location combinations increase. For a while this can all be done in Excel; however, at some stage you will need software to manage this process. If you are at that stage and want to learn how Toolio can help, feel free to reach out to us!