Reducing Out of Stocks

Probably three of the ugliest words for a retailer or vendor are -- out of stock. Each and every time an out of stock (OOS) occurs, the retailer, vendor, and consumer lose. Revenues go down, profitability goes down, consumer frustration rises. This is not a news flash, one can find a wealth of OSS research with a simple Google search.  And worse yet, "thought leaders" have been writing articles and funding research for decades to quantify the magnitude of the problem, diagnose root causes, and create solutions. The net benefit of all this work... drum-roll please.... average OSS rates are holding steady at about 8% to 10% (double for promoted items) and have not changed much in the last 17 years, according to GMA/FMI/CIES/VICS.

Why is reducing out of stocks and improving self-availability such a hard issue to tackle? Didn't someone tell us all that barcodes, ECR, VMI, RFID, CPFR, and new POS software would fix all of these issues and usher in the age of the 99.999999% efficient supply chain?

The fact is, most vendors are blind to actual consumer demand at POS. At a recent conference, I asked 5 large vendors and 3 small vendors if they knew their in-stock percentage at a store level for their retail customers. It seemed like a logical question, because they were all describing 7 figure investments they had just made into trade promotion software.  Certainly if you are going to run a BOGO, you want consumers to actually see product on the shelf when they arrive at the store. The answer for all eight vendors was-- NO! They have, at best, delayed visibility (usually 3 weeks) into what is happening at a store level, and in many cases, the only visibility they have, is chain-wide monthly scorecards the retailer sends showing their grade on in-stock %.

This reminds me of coaching my 9 year-old son's baseball team.  While they want to do all the cool and difficult things like turn a double-play, the game is won and lost on the most basic elements, like running as hard and fast as you can down the first base line and then 10 feet through the bag.

Reducing out of of stock's is a complex problem, with many moving parts and multiple parties that have to execute in harmony or the entire system breaks down. But, you cannot manage and improve what you are not measuring. And it's hard to believe a vendor is making an effort to reduce OSS if they are not measuring on-hand at their retail customers. If you are a vendor dependent on a retailer maintaining good self-avaiablity to grow your sales, then you need to proactively manage in-stock. That means, if your retailer makes POS activity available at midnight Sunday, your team should be taking action by 11:00 am Monday morning. Not just loading data into a spreadsheet,  so they can start the analysis process. Or worse yet, not even receiving the data.

Next Article: Increasing Sales By Managing Out of Stock Inventory