June 21st 2003 From Jonathan Smith, Axis Management Consulting Sir, Factory Gate Pricing (FGP) has generally got a bad reception. Many suppliers have jumped to the worst conclusions about this latest retailer initiative. However, there is a range of potential benefits to be reaped by suppliers, large and small from factory gate pricing.  One issue stands out as both important and neglected in the debate, the potential to make an impact on the major issue of on-shelf availability.  There are 2 main reasons why the move has the potential to make a positive impact on on-shelf availability. First, the mere fact of a single organisation (the retailer) taking control all the way from factory gate to supermarket shelf is, of itself, likely to lead to improvements in on-shelf availability. Joined-up systems generally work better. Second, the serious investment being made by the retailers in processes and systems will simply leave many current operations standing. For many suppliers, a very small increase in on-shelf availability, and hence sales, would more than offset the cost of factory gate pricing (1-3%).  Suppliers need to assess the level of increased sales which would offset the profits lost in the change, and identify how best to make their operations mesh with those of the retailer under the new regime. Factory gate pricing is here to stay. Suppliers now need to turn it to advantage in the pursuit of better on-shelf availability.

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