Snacks & Candy

Inventory Velocity'

Newspaper uses candy bars to examine supply-chain speed
VANCOUVER --The National Times used chocolate candy bars to investigate "inventory velocity" among retailers of various types, including grocers, pharmacies, convenience stores and department stores. Retailers included 7-Eleven, Couche-Tard, Loblaw, Metro, Rexall, Shoppers Drug Mart, Wal-Mart and Zellers. It used products made by Cadbury, Hershey, Mars and Nestle.

The newspaper examined the ages of chocolate bars sitting on retailer shelves, an indication of how quickly the bars flowed down the supply chain from factory to retailer to consumer: the "inventory velocity."[image-nocss]

It found that the average chocolate bar was 140 days old. But there were significant differences between firms, it said. Among the retailers, Wal-Mart and 7-Eleven had the fastest inventory flows. Their products were about 1.5 months younger on average than those at the other six retail chains. The differences were smaller among the manufacturers, where Cadbury and Mars had the fastest times.

Some manufacturer-retailer pairs had noticeably better ages, said the report. This suggests they may have been working together to co-ordinate their operations. For example, Mars products for sale at Wal-Mart had an average age of just 76 days. This was lower than the averages for Wal-Mart overall or for Mars overall. By comparison, Mars products at Rexall averaged 174 days old. This was higher than the average at Rexall overall or for Mars overall.

Candy produced farther from market was not necessarily older than that produced nearby. For example, Mars products from the United States were no older than those made in Canada. On the other hand, Hershey's U.S. imports were much older than those made in Canada.

Chocolate bars have a fairly long shelf life, typically about 12 months, according to the report. So an average age of about 4.5 months poses no great concerns for product safety. Food products do, however, gradually lose their flavor over time. Thus faster inventory flow implies potentially fresher and tastier products for consumers, the paper said

Inventory flow also affects business efficiency. Faster velocities imply lower inventory levels and thus lower carrying costs, said the report. Retail sales of chocolate confectionary products in Canada total about $2.3 billion per year. If every firm in this industry could match the performance of Wal-Mart & Mars, the industry's annual savings could exceed $20 million, it said.

Wal-Mart and 7-Eleven had the fastest flows among retailers, the National Times said. Both firms expanded into Canada after becoming successful elsewhere. Using the study's operational measure of inventory velocity, these two chains beat the Canadian firms on their home turf, the report said.

Mars had the fastest velocity among manufacturers, the report added. This is in spite of, or perhaps because of, the fact that it imported most of its bars from the United States. The Mars website describes an integrated cross-border production system. This is similar to automobile manufacturers. Each of their factories specializes in a small number of products that are shipped to stores across North America. For example, while the Mars bars in this study were made in Ontario, the M&Ms came from New Jersey and the Skittles from Texas.

By contrast, Hershey, until recently, made most of its products for Canada at its Ontario plant. It was operating more on a regional basis. The results of this study suggest Hershey had good reason to want to reorganize its production system, the report said.

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