Guidance

Best practice statement: Forecasting and promotions

Published 25 June 2018

1. Outline

Statement of the Groceries Code Adjudicator (GCA) understanding of best practice in relation to forecasting, under paragraph 10 of the Groceries Supply Code of Practice (the Code) and Promotions including taking due care when ordering for Promotions, under paragraphs 13 and 14 of the Code.

2. Relevant Code provisions

Paragraph 10 of the Code deals with compensation for forecasting errors, as follows:

(1) A Retailer must fully compensate a Supplier for any cost incurred by that Supplier as a result of any forecasting error in relation to Grocery products and attributable to that Retailer unless:

• (a) that Retailer has prepared those forecasts in good faith and with due care, and following consultation with the Supplier; or
• (b) the Supply Agreement includes an express and unambiguous provision that full compensation is not appropriate.

(2) A Retailer must ensure that the basis on which it prepares any forecast has been communicated to the Supplier.

Paragraph 13 of the Code deals with Retailers not requiring a Supplier to predominantly fund the costs of a Promotion, as follows:

(1) A Retailer must not, directly or indirectly, Require a Supplier predominantly to fund the costs of a Promotion.

3. GCA consideration of the issue

In 2015 the GCA reviewed the forecasting approach of the ten regulated retailers to assess their alignment with the Code. In March 2016 the GCA published a statement of best practice which retailers should work towards. It was found that retailers adopted a range of approaches and used the word “forecast” in a variety of ways. Some made a clear distinction between a forecast and an order; others did not see forecasting as a discrete activity but rather, as an integral part of supply chain management, often proceeding close to real time; still others integrated forecasting into a joint business planning process that was documented alongside the Supply Agreement. Many suppliers do their own forecasting, some sharing this with the retailers they supply.

Following a review in March 2016 of retailer progress towards the statement of best practice and in light of continuing supplier feedback, the GCA decided to consider the issue again. The GCA also considered issues in relation to promotions.

The GCA has concluded that on the information provided, all retailers’ approaches appear to be compliant with the Code. All retailers are striving for continuous improvement in forecasting practice and activity in relation to promotions. Suppliers have however continued to report issues to the GCA. The GCA has accordingly decided to update this statement of best practice.

4. GCA statement of best practice: Forecasting and Promotions including taking due care when ordering for Promotions

The GCA has requested that retailers consider what improvements they could make to the transparency of their communications with suppliers about forecasting, to allow suppliers to meet orders and to anticipate and calculate the full costs of supply. The GCA has indicated this may be achieved by:

• Closer collaboration between retailers and their suppliers, to reduce the impact of inaccuracies, notwithstanding that forecasts may have been very carefully prepared;

• Applying this collaborative approach to develop still more accurate forecasts which can be agreed and against which suppliers can raise any challenges or obstacles for discussion;

• Regularly reviewing forecasting performance to compare forecasts made against orders placed, and to take this into account when deciding whether to impose any charge or penalty, including in relation to short orders and service level performance;

• Explaining to suppliers what components make up any relevant forecast by a retailer;

• Ensuring with suppliers that the risks and costs of fluctuations in supply and demand are fairly shared, reflecting among other things the influence and control each had over the forecasting process, especially where weather is a significant influencing factor;

• Ensuring that suppliers are able to get access to supply chain or buying teams to share intelligence and discuss forecasts or orders;

• Taking sufficient responsibility for forecasts after they have been set, including engaging with suppliers over last-minute changes or when products are not selling to forecast;

• Ensuring that retailers have adequate systems and processes which learn from and take account of known or past issues;

• Explaining to suppliers how to get compensation for inaccurate forecasting, when it might be due and who to talk to;

• Considering the extent to which retailers might offer compensation for inaccurate forecasting;

• Avoiding blanket exclusions in Supply Agreements as they are unlikely to be compliant with the Code, both in terms of risk sharing and, depending on the facts, due care in preparation of the forecast;

• Understanding that the due care test is unlikely to be capable of being met by a retailer that provided no way for a supplier to contribute to the forecasting process, whether collaboratively in reaching agreed volumes to be ordered or by ensuring suppliers can raise questions and queries if a forecast seems to them to be inaccurate or to have resulted in an excessive order;

• Ensuring that buying-in periods for Promotions are reasonable and in particular do not exceed the shelf life of products;

• Ensuring that timelines are adhered to and commitments to Promotions are delivered instore;

• Taking account of the likely effect on sales of similar, competitor or related products of having certain other products on promotion;

• Taking extra care over ‘one off’ activities (such as seasonal products, trade ready display units and special bar-coded products) where there is limited or no outlet for the product to be sold elsewhere by the supplier; and

• Ensuring that suppliers are able to access adequate sales data to verify the accuracy of any deduction proposed for retrospective or trigger funding.

This is intended to promote better working practices by the retailers, in the spirit of continuous improvement. For the avoidance of doubt, approaches in individual circumstances may differ depending on retailers’ and suppliers’ interpretation of relevant competition law.

GCA June 2018