How to Make Promotions Work in a Cost-efficient Context - A Case Study at Lantmännen

Abstract: Problem -­‐‑ Promotions are the main reason for a majority of stock out situations and increases the amount of waste for perishable items, and strong competition within grocery retail has led to a significant increase in frequency and depth of promotions since the late 20th century. Lantmännen Cerealia has identified problems with low customer service levels (CSL) during promotions and lack of long term planning in general. This has thus lead to the conclusion of the need for looking further into the problem regarding how Cerealia can handle promotions better. Purpose -­‐‑ The purpose is to help Lantmännen Cerealia achieve and secure a better match between demand and supply for promotions through increased understanding for promotional causes and effects as well as better planning processes. Research Questions 1. What are the causes within Cerealia for low CSL during promotions? 2. What can Cerealia do, and how can the Sales and Supply Planning units work together, to improve the promotion planning process? Method -­‐‑ This study is based on a single case study with the unit of analysis being promotions. Further, the method for gathering information to the Frame of Reference and Empirics chapters are mainly qualitative, with occasional quantifications, further implying a more inductive approach. Trustworthiness and credibility is mainly ensured through gathering information from many different sources, both within written theory and qualitative interviews, implying a high construct validity. The project execution follows the two research questions: 1. Understand causes for low CSL during promotions in Cerealia a. Identify root causes through Five Why and Ishikawa analyses b. Choose a path to pursue 2. How to improve the promotion planning process ‑ Gap Analysis a. Identify current state of promotional planning process b. Derive an optimal future state from theory and empirics i. Develop a tool for collaborative promotion planning ii. Develop process routines and procedures for the use of this tool and to ensure better planning of promotions c. Develop a road‑map to reach the future state Conclusion -­‐‑ To summarize the findings of this study, the main issue with Cerealia today, in the context of their promotion planning, is their lack of cross‑functional integration as a result of unclear strategies and lack of optimal supply chain configuration. To combat this issue, the analysis yielded four general steps to follow: 1. Remove functional strategies and communicate firm category strategies throughout the organization. 2. Decide on promotion strategy within each category and set up supply chains accordingly. 3. Secure a long term promotion planning process by including capacity constraints for promotion volume planning and long term promotion information in the S&OP process. 4. Facilitate mix planning on the MS level with the help of a promotion planning tool and appurtenant process routines In other words, this study concludes that promotional products, with a lower contribution margin, should be separated from the baseline products, with a higher contribution margin and cost‑efficient supply chain, through a market responsive supply chain. This study aims to enhance the challenges with promotions in general, and the necessity of a clear supply chain strategy, as well as the many hardships of providing to the Swedish grocery retail market. Keywords -­‐‑ Promotions, Promotion Planning, Cross‑functional Processes, Supply Chain Configuration, Strategy Alignment, Customer Service Level (CSL), Key Performance Indicators (KPI), Sales and Operations Planning (S&OP), Master Scheduling (MS), Cost-­efficiency, Market Responsiveness