When a line runs short, the substitute is usually chosen by whoever is nearest the customer, and it goes out under the customer’s own product code at the price agreed for the original. Because the swap is recorded as a service event rather than a pricing decision, what it cost rarely reaches anyone looking at margin. In food and beverage wholesale, it tends to surface later as account variance nobody can place.
Why is a substitution a margin decision?
A shortage is usually treated as a service problem. On paper, that makes sense. The aim is to get the customer something close to what they ordered, on the right van, without a phone call. By that measure, most substitutions work.
In practice, every substitution is also a pricing decision. The replacement carries its own cost, its own pack and sometimes its own brand, but the price, the product code and the account all stay the same. It just isn’t made or recorded as a pricing decision.
How a substitution happens on a live order
A foodservice wholesaler is short on a pack of grated mozzarella on a Thursday. A pub group has it on almost every order. Customer service spots the shortage at order confirmation and swaps in the nearest thing in stock: a branded pack of the same size from a different supplier. It costs more, and it goes out under the pub group’s own product code at the price agreed for the original.
The same afternoon, a picker finds the house-brand chopped tomatoes have run out. The warehouse sends a premium brand from the next bay, because that keeps the order complete.
The delivery note shows a substitute line. The customer’s product code stays the same. The pack behind it has changed. The invoice shows the agreed price.
Nobody has done anything wrong. Both decisions were made quickly, by the people nearest the customer, with the information in front of them. That information was stock and service. It wasn’t cost or margin.
Why the cost of a substitution is hard to see
The substitution is logged as a service event, so it’s judged as one. The customer was looked after and the order went out complete.
What it cost isn’t recorded anywhere. The business ends up with a complete record of what it delivered, and no record of what the substitution cost. To anyone looking at the account later, the line looks like any other week.
What substitutions cost over time
Over time, a pattern settles in. The same lines run short, the same substitutes go out, and the same customers receive a more expensive product at the original price. Customers rarely query a substitution that works in their favour, so the margin on the account drifts without anyone deciding to give it away.
When the substitute runs the other way, smaller or cheaper than the original, the customer usually notices. The invoice is queried and a credit note follows.
Who should decide substitutions?
None of this is a reason to stop substituting. A complete order is usually the right outcome. The businesses that handle it well decide substitutions before the shortage, not during it.
For their regular lines and largest customers, they agree in advance which products can stand in for which, while there’s time to look at the cost. When a line runs short, whoever is nearest the customer applies a decision that has already been made, rather than making a commercial one on the spot. Every substitute line is recorded against the original, so the cost of the swap can be seen when someone looks at the account.
Four checks to see what substitutions are costing you
- Cost last month’s substitutions. Take last month’s delivery notes for your five largest customers and list every substitute line. For each one, compare the cost of what went out with the cost of what was ordered, at the price that was charged.
- Find out who chooses. Identify who chooses the substitute at each stage: at order confirmation, at picking and at loading. Note what each of them can see about cost when they choose.
- Check how substitutions are recorded. Find out whether your ERP records a substitution as a change to the original line or as a new line. If the original line disappears, so does any way of comparing the two.
- Look for clusters of credit notes. Pull the credit notes raised against short or substituted lines in the last quarter, and note which customers they cluster around.
If the substitutes cost more than the originals, margin is going out with complete orders. If the people choosing can’t see cost, the decision is being made without the one figure it affects most. If the original line isn’t kept, the cost can’t be found later. If credit notes cluster, substitutions are costing you twice, once in margin and once in admin.
A shortage is one of the few moments a business makes a pricing decision on a live order without anyone treating it as one. Deciding it in advance is what keeps it visible.
Frequently asked questions
What does a product substitution cost a food wholesaler?
It costs the difference between what the substitute cost and what the ordered product cost, at the price that was charged. Because the invoice shows the agreed price for the original, a more expensive substitute reduces margin on that line without any record of it. A smaller or cheaper substitute usually leads to an invoice query and a credit note instead.
Who should decide which product is substituted when a line is short?
The decision is best made in advance, by someone who can see cost and margin, for regular lines and the largest customers. Customer service or the warehouse then applies an agreed substitution at order confirmation, picking or loading, rather than making a commercial call on the spot.
How should substitutions be recorded?
Each substitute line should be recorded against the original line rather than replacing it. If the original line disappears from the ERP, there is no way to compare the cost of what was ordered with the cost of what was delivered.
How can we tell if substitutions are affecting margin?
Take last month’s delivery notes for your largest customers, list every substitute line and compare the cost of what went out with the cost of what was ordered, at the price charged. Then check which customers the credit notes for short or substituted lines cluster around.
Where Allsop fits
At Allsop, we work with food and beverage businesses to keep orders accurate and margin visible from the moment an order arrives, through intelligent software for Customer Order Automation, Data Workbench and Customer Margin Management. That means every order line checked against agreed prices and availability as it comes in, short lines flagged for your team to review rather than swapped out of sight, and clearer margin visibility by customer account, so drift is easier to spot and explain.
If you’re reviewing how orders are captured and checked, our buyer guide on how to choose order management software sets out what to look for.
Speak to Allsop, and we’ll look at how short lines and substitutions are handled in your order process today.
