Operation with low shelf life products

Greater access to information has transformed consumer behavior with regard to health. More and more people understand the need to have a balanced life, through the combination of exercises with a healthy diet, to prevent diseases and physical problems. And the reflection of this can be seen in commerce and on supermarket shelves, increasingly inhabited by “organic”, “gluten-free”, “preservative-free”, “vegan” products and the like.

Companies have increased their portfolio in this direction, either through the acquisition of brands that have these characteristics, or through the launch of new products. However, this may bring new operational requirements, as such products may have a reduced shelf life (shorter shelf life), due to their components. Placing these products in the same operation as others that do not have this restrictive characteristic can lead to serious problems: expired products on the shelves, increased conflicts with customers, consumer dissatisfaction and financial losses due to losses due to perishable inventories.

Figure 1 – Organic products generally have a reduced shelf life compared to non-organic products.
Source: Federal Senate

The first fundamental point to maintain efficiency in the operation with these types of products lies in demand planning. It is important to have high accuracy in forecasting these products, as forecasting errors can lead to high inventory levels, which increases the chances of products expiring along the chain. It is important to emphasize that it is not enough to have only a good mathematical method of statistical forecasting, but rather a structured S&OP process, which involves senior management, which has commercial engagement, effective indicators and accountability.

The sector of supplies and relationship with suppliers, which is responsible for the purchase of raw materials (if the products are manufactured by the company) and/or for the purchase of products manufactured by third parties, also plays a fundamental role in the operation. Lot sizes and manufacturing frequency have an immediate impact on required inventory levels. The smaller the production batches and the more frequently the products are shipped, the fresher they will move through the chain, reducing the chances of problems due to perishability.

In transport, it is possible to take advantage of synergies in the delivery of low shelf life products with other “standard” products, in cases where they are the same customers and there is no impact on loading and unloading times. In this way, there is an increase in vehicle occupancy and a reduction in transport costs. However, if the frequency of visits to customers is low, dedicated transport may be necessary, more frequently, in order to preserve the validity of the products. To define the transport strategy, it is essential to analyze this trade-off.

In storage, two points must be evaluated in the operation. The first concerns the methodology for inputs and outputs of inventories. Depending on the number of links in the chain, some products may disregard FIFO (First-In-First-Out) and perform LIFO (Last-In-First-Out). For example, if we have a hub that serves customers and transfers products to other DCs, a LIFO can be performed on the transfer, to avoid that the products that arrive at the DC have their freshness reduced compared to the products that leave the hub and go straight to customers (Figure 2).

Figure 2 – Performing LIFO on transfers and FIFO on deliveries is an option to avoid harming the most distant links in the chain.
Source: ILOS

The second point regarding storage is the palletization of products for transfer. It is essential to allow pallets to have a combination of SKUs, so that a huge volume of products is not transferred at once. Warehouse operations often push the entire month's volume into a single day, which greatly impairs the life of the products at the end. This is more serious for class C products, which have less demand and may have greater shelf life problems. The assembly of the pallets must allow the products to be transferred with high frequency and in reduced volumes. Assembling the pallets by layers of SKUs, for example, can be an option. Although this may lead to an increase in picking costs (increase in unit picking), it is important not to jeopardize the freshness of the products at the end.

Inventory management and control are equally important in this context, so that all areas must be engaged to ensure the quality and level of service in customer service.