Why some supermarkets live for decades while others close after a year and what logistics have to do with it

Imagine a package of genuine Italian spaghetti on the shelf of a Moscow supermarket. How many factors do you think form its price? Let's get to the bottom of it.

On the manufacturer's side in Italy:
1. Cost: Italian manufacturer's costs for flour and other ingredients + salary costs for technologists and their supervisors.
2. Marketing costs: costs of research, packaging design and production, website, advertising and channel management within Italy and for export.

Management costs:
1. money for renting the production hall, including utilities;
2. expenditures for administrative needs, consultants and auditors, security of the production hall;
3. recruitment and training of new employees;
4. expenses for office maintenance, telephone and internet;
5. expenses for corporate transportation of employees.

On the side of the supplier and seller in Russia:
1. Customs costs;
2. Warehousing costs;
3. Transportation costs from the warehouse to the store;
4. Costs of renting retail space;
5. Expenses for labor remuneration of sales personnel;
6. Costs of writing off spaghetti that has fallen apart or unsold spaghetti with expired shelf life;
7. Costs associated with the absence of goods on sale when there are no analogs on the shelves.

If part of the costs, which form the purchase price, is almost impossible to manage, then with the second part you need to work just the same. These are quite manageable costs: the costs of write-offs due to improper storage of goods in the warehouse and in the store, irregular deliveries and illiterate distribution of volume between points of the retail network. Thus, overstocking (even when the product is perishable, as ours is) is capital frozen in inventory, and not having the product on the shelf is lost revenue. Frozen capital is bad because the profit released from it can be used for development or put in your pocket.

Experts say that anchor retail chains are able to compete with each other only by logistics, because the conditions of wholesale purchases are plus or minus the same for all major retailers.

Those sellers who manage to achieve favorable prices for logistics from the supplier to the central distribution warehouse, as well as those who have built a competent inventory management system, win. The main mistake of sellers is to put all expenses in a “common pot”, instead of analyzing the movement of funds for each item separately. Only this approach will allow you to understand how and to what extent you can optimize logistics and other non-fixed costs.

Let's get back to our pasta. What does their ideal logistics look like?

1. The store's purchasing manager forms a request to the supplier in advance, and the goods arrive at the supermarket the very next day.
2. The spaghetti is well packaged and the barcode is read by the scanner.
3. Immediately after the batch is released from the warehouse, the goods follow to the store without delay.
4. Everything is in order with the documents for the goods.
5. The vehicle arrives at the store without delay.
6. The goods are received in the store's information system on the same day.
7. The previous batch of spaghetti is just sold out by the time the new batch arrives - evenly and without losses.

As we can see, ideal logistics is not only about “cheaper”, but also about communication and order. When everything is clear, according to plan, without errors and on time.

Now, for comparison purposes, let's see what happens in the kitchen of buyers who work the way they do:

1. After waiting until the last 3 packs are left on the shelf, the manager forms a request to the supplier.
2. The supplier waits until you order some more goods and collects the order 2 weeks.
3. Since the store does not know exactly when to expect the order, it does not notify the carrier in advance. The car is not sent to the warehouse on the day the order is ready. The shipment eventually arrives at the supermarket with a delay of 2.5 weeks.
4. The carrier confuses the accompanying documents, which does not allow the goods to be received on the same day.
5. Since the delivery to the central warehouse of the supermarket was unplanned, and the documents were in trouble, the car with the goods stood on unloading for an extra day.
6. As a result, the spaghetti on the shelves were absent for almost 3 weeks. The supermarket not only failed in sales and when the goods were missing, but also sent customers for the missing assortment of exclusive pasta to competitors. Whether sales will continue at the same pace is not known.

Since each batch of goods is sold out in different terms due to the fault of all participants of the logistics process, it leads to deficit, surplus, loss and illiquidity. This, in turn, generates lost profits.

In order to optimize logistics costs, it is necessary to calculate separately the movement of each product in both monetary and time terms, breaking them down into separate components: the stage of customs clearance, transfer of goods to the transport company, placement in the supplier's warehouse, making a request to the supplier, placing an order for transportation from the supplier, arrival of the goods at the central warehouse and distribution to retail outlets, placement in the sales area and in store warehouses.

The costs of providing and maintaining inventory are not the main ones, but their optimization within each product category can bring the store to a completely different level of profitability.