Dilemma of Supply Chain Planning in an Allotment scenario - 2
Another unique challenge is Pricing of CPG products in an allotment scenario. As mentioned in the last blog, allotment of products to different demand streams is done under unique business situations i.e promotions, a genuine supply constraint or for doing very focused test-marketing. Pricing is a CPG context is very complex and is proportionate to the order volume and the tier of the customer. Customers who order in Full-Truckload are passed on logistical benefits by pricing a unit in conformance with the best possible price. Likewise, the Mom and Pop stores or small time retailers, who may order in less-than truckload may not get the best unit price.
In an allotment scenario, customers (read retailers to the CPG company) are pre-informed about their allotted quantities. They are clearly told about the possible ordering pattern in line with the different promotional events or marketing strategy collaboratively derived with the retailer. The Customer Sales Reps in the CPG company aligned to very specific sets of customer or may be just one customer, collaboratively arrive at an ordering plan with the retailers. The allotment quantities may or may not have any correlation with possible truckloads.
The retailers though, are at a free will to order what they want agnostic to alloted quantities. It is observed that retailers continue to order full-truckloads to derive logistical benefits, although they may have been allotted only half-truckloads. In such a scenario, pricing the order becomes a very unique challenge. One of the dilmena that a CPG company faces in such a scenario is to whether they should price the product based on pure and pristine customer demand or should they price it on pre-decided allotment quantities. While the different departments within our client organization had differing views, the consensus reached with the MDO(Marketing Development Organization) was that pricing needs to be based on internal constraints of the CPG organization instead of the pure client demand.
The project team is at the moment defining such a business process and possible supporting technical solution to make sure that the pricing gets done on alloted quantities instead of ordered quantitiy. There are a few possible options available within the tool, however there is none that comes as a seeded functionality.
In the next blog, we will discuss some deeper concepts of Pricing in CPG industry based on allotments that have posed very unique challenges in the project.
