Iceland, part of the Big Food Group, is a high street supermarket chain with 760 stores across the UK and Ireland. In Iceland’s 2003 annual report, it set out two strategic objectives – to develop organisation processes and people that enable efficiency and innovation; and build a reputation with suppliers as the most constructive and innovative channel to market. To achieve that, the company would have to move away from a co-managed inventory and adopt a collaborative supply chain.
Also, Iceland felt that creating a closer working relationship with suppliers would lead to efficiencies and eliminate waste within its supply chain. As such, it is one of the first retailers in Europe to allow suppliers to have visibility from the factory through to the store.
Sharing information with suppliers has dramatically increased event and promotion effectiveness, reduced distribution costs and decreased warehouse stock. Ultimately, Iceland is closer to its customers in offering the products that they want.
As a result, Iceland launched a unique collaborative initiative with many of its key suppliers. Overall, the initiative has strengthened supplier partnerships while managing the extended supply chain proactively and eliminating waste.
Before this initiative, a supplier to Iceland was essentially working with limited information in an uncertain environment, resulting in markdowns or inefficient use of transport. Few suppliers had visibility beyond their despatches or knowledge of the Iceland business.
When information was shared, suppliers could not react quickly enough to changes in stock requirements and increased consumer demand.
James Hulse, Iceland’s supplier development manager, comments: “Suppliers rarely have sight of their products once they leave their factories, so we needed to give them a line of sight into the business. Getting forecasts wrong can and does lead to significant cases of overstock. By allowing our suppliers to get more involved in the entire supply chain, we knew we could benefit from few stock-outs, improved availability, more successful promotions and, ultimately, better customer service.”
Using Portfolio Allocation and Replenishment solutions from JDA Software and innovative business practices, a number of Iceland’s suppliers can now tap directly into the company’s store level replenishment data to improve on-demand forecasts. Needless to say, security was paramount so Iceland developed a robust system that limited each partner’s views to its own product / store level data. As a result, Iceland’s suppliers are able to view only relevant data and manage their products early on – from raw material through to store level decision-making.
After running a successful pilot and training in 2003, Iceland and its chosen suppliers have accumulated a wide array of benefits. Because residual stocks, packaging and raw materials cannot necessarily be used for other products, greater supply chain visibility has been particularly beneficial for the suppliers of Iceland’s own-label products, including Sun Valley Foods.
Hulse says: “We are now giving our suppliers access to the store as well as warehouse data required to help them manage their business with us more effectively.”
Since the introduction of the initiative, Sun Valley Foods also observed significantly lower distribution costs and increased vehicle use. This year, it has achieved the lowest average pallet rate ever with Iceland. The company also boosted its confidence to improve manufacturing efficiency.
Sun Valley Foods’ supply chain planning manager, Ian Parkes, explains: “We try to deliver into Iceland less frequently with fuller loads, so we’ve reduced delivery costs significantly, partly by sharing loads with another supplier.”
Demand for fresh produce can now be forecasted more accurately. According to Hulse, in certain cases this has resulted in the elimination of warehouse stock that has created an additional one to two days of shelf life in store – meaning fresher produce for the consumer.
Other benefits include:
Improved service levels.
Faster flow of product through the supply chain.
Rational use of resources and more effective promotion planning.
Synchronisation of production to better match supply with demand.
Shared responsibility and mutual trust.
Building on the success of its early partners (Coca-Cola, Deans Foods, Rye Valley, Schwans and Sun Valley), Iceland’s program has been progressively rolled out since June 2003 with other targeted suppliers. At least 18 suppliers are now up and running.
Hulse says: “The payback has been quick which has made the investment required definitely worth it. Every supplier tells us that trading relationships have improved dramatically. And it’s not just the financial return, it’s also the soft benefits that everyone is talking about, such as being able to plan promotions more effectively and working more efficiently together.”