Optimising Ratio Packs - Part 3

In the first to sections exploring how to optimise the contents and quantities of ratio packs, what becomes rapidly clear is that while ratio packs can be attractive from the perspective of reducing operational costs due to the larger carton size as well as the ability to inject multiple sizes per distribution, the cons become quickly apparent as soon as they’re applied to longer term trading scenarios where availability across the range of products involved is important.

Realistically the best outcome you could strive for in this case is a ‘least worst’ configuration. Simply put, ratio packs are very effective in single drop scenario’s where a set up quantity per SKU is important and as they sell through it is less critical for all SKU’s to be in-stock. Another scenario which is typically the most common is for the initial drop of a new range where a large carton size is brought with representation across many SKU’s in a curated ratio, however as product sells through it is replenished at the SKU/size level.

SKU replenishment is unsurprisingly superior to driving availability through-out a season which we will explore below. This of course must be balanced against the operational cost and complications of moving a higher amount of cartons containing smaller quantities. Depending on the product characteristics and the supply chain capabilities this may or may not be an obvious choice.

As you can imagine, replenishing in single SKU’s allows for the injection of each SKU based on the trading velocity of each SKU and store. Assuming this volume is local in a local distribution facility, this allows for a impressive levels of availability without the headache of excess volume being held in the final node of the supply chain.

Furthermore, the lower the pack size, the more surgical a business can be and therefore the higher potential full price sell-through. Which once again needs to be considered against the additional cost of processing the additional cartons for ‘roughly’ the same amount of units.

In the example we used earlier, in order to trade at 100% availability for an option that is forecasted to sell 21,383 units across 7 sizes and 44 stores, we were only able to meet that demand by purchasing 23,888 units across 3 ratio pack configurations (assuming perfect foresight of demand for the season). This was 11.7% more stock than sales demand which while it was a significant improvement on a single ratio pack for a season, still presents a large profit opportunity.

If we simulate various pack sizes of single SKU cartons, the benefits quickly become apparent.

Pack Size 14: 23,492 units required (1,678 packs) or 9.7% above demand

Pack Size 12: 23,028 units required (1,919 packs) or 7.7% above demand

Pack Size 10: 22,700 units required (2,270 packs) or 6.2% above demand

Pack Size 8: 22,496 units required (2,812 packs) or 5.2% above demand

Pack Size 6: 22,146 units required (3,691 packs) or 3.5% above demand

Pack Size 4: 21,812 units required (5,453 packs) or 2% above demand

Pack Size 2: 21,532 units required (10,766 packs) or 0.6% above demand

What then remains is what is best for your business? To determine this, consideration of business and supply chain factors is then needed which is covered in the ‘Optimising Pack Quantities’ section which calculates the cost of moving packs through the organisation, the costs attributed to weights and excess volumes and the desired service level for each of the SKU’s.

If you require support in determining what is right for your business feel free to contact us on Oliver.Blombery@SCIPSolutions.com.au