Shelf-ready or not?

Why do products go out of stock? Forecasting errors? Lousy service levels? Sudden peaks in demand? Depressingly, says Tesco's category director for bakery Tony Reed, the most likely explanation, is that they are not actually out of stock at all, but sitting at the bottom of a rollcage in an anonymous brown cardboard box in the store backroom, just a few feet from the shelf. But as far as the customer is concerned, of course, they might as well be in Timbuktu.

Which is where shelf-ready packaging (SRP) comes in. No more brown cardboard boxes and sellotape, but goods that can be wheeled directly on to the shopfloor or trays that slide straight on to the shelf.

If there is no such thing as a silver bullet when it comes to tackling out of stocks, for Tesco at least, SRP is bang on top of the priority list (see page 25).

The thorny issue, of course, is not whether SRP can help tackle availability -- that argument has already been won, but who will end up footing the bill.

For manufacturers asked to supply goods in trays with perforated panels that can be ripped off to reveal their contents, packaging costs have increased, but the process of moving goods through the factory and supply chain has not fundamentally changed.

For those asked to supply product in a wheeled merchandising unit (MU), however, the business case looks rather less appealing at first glance, admits IGD programme manager and SRP expert Tarun Patel.

He says: "Manufacturing sites are generally geared up to put products in cases on to pallets, not merchandising units or dollies, so this can involve structural changes or extra labour costs to fill the units manually.

"Ideally, this process would be automated, but that's not viable if the retail customer only represents 10% of your business.

"But there is no question that dollies have raised availability on fast moving high volume lines such as soft drinks. They also reduce damage, which can account for 1% of retail sales -- so you have to look at the costs and benefits in a more holistic way."

Sally Holdstock, who heads up the MU project at Sainsbury, says the supplier pain, retailer gain argument is "too simplistic". She adds: "The supplier isn't the only one incurring costs -- it has cost us money to change our shelving, and to move the MUs through a dedicated hub at a depot in Hertfordshire. We have also worked with Tesco and Asda to develop standard units with Polymer Logistics so that suppliers are not having to do things differently for each retailer. It's a gradual process, but we are now looking at water, eggs, UHT milk as well as the usual categories like soft drinks."

Unilever supply chain manager Lorraine Amos is sanguine. "We have an open mind," she says. "In many cases, we need to look at packaging again anyway. But wheeled dollies are more of a challenge. We need to understand how they will work and what it means if you have an automated packing process. It could be that goods will be consolidated onto units by third parties."

As to whether the long term gain will outweigh the short term pain, the jury is still out, says one consultant that has worked with manufacturers on SRP. In the meantime, he says, some have managed to share out the costs even if retailers won't admit that price increases are specifically linked to SRP.

Keith Rosser, who is driving Sainsbury's SRP initiative, says he is keen to work with manufacturers so that it is as cost neutral as possible.

He says: "Let's say that Tesco puts a product on the top shelf and Sainsbury on a bottom shelf. As long as there are perforations on all sides of the tray, Tesco can rip the front off and Sainsbury can rip the top off, so you don't need customised packs.

"For branded manufacturers, standard pack sizes are very important, or we could put suppliers in an intolerable position."FM