The cycle of Consumer Packaged Goods (CPG) retailing and marketing continues. Retailers compete and consolidate, while channels such as dollar stores and extreme value gain in importance. New products are launched, while long-time favorites fade away as a new shelf set is created. The shopper becomes more demanding and eager to change stores if displeased.
And through it all, the beat goes on for out-of-stocks (OOS), that traditional, much-studied and nettlesome problem. What is the final solution? Is there one?
Food Logistics has assembled a panel of experts to discuss the problem and latest solutions. They include:
- Thomas W. Gruen, Ph.D., professor of marketing, University of Colorado at Colorado Springs;
- Jack Haedicke, president, Arena Consulting Group, Minneapolis;
- Pamela Stegeman, vice president, supply chain and technology, Grocery Manufacturers Association (GMA), Washington;
- Chad Symens, president and CEO, Rainmaker Group, Akron, OH;
- Eric Togneri, principal, vice president, CPG solutions, Association of Category Development Professionals (CPG CatNet), Atlanta.
What companies are doing a good job of managing out-of-stocks?
Haedicke: Target is a good example. They have positive receiving, meaning they check in every SKU and have perpetual inventories in the store, netted against what scans through. That still is extremely rare. They know their inventory all the time and they can keep OOS fairly low. Wal-Mart and Meijer do it, but not many others. Also, Wal-Mart, Target and Meijer all ship to the store based on scan. They are so much better at fulfilling inventory because of what I think are very basic systems.
Why haven't more companies done this?
Haedicke: When CEOs have the opportunity to spend money on internal systems, build a new store, or put in a new merchandising strategy, they look at the top line instead of managing the bottom line. Cost matters, but having the systems to manage that cost is really important. These are not difficult things to do.
After so many years of studying the problem, there are still root causes of out-of-stocks that need to be addressed. What are they?
Gruen: There are three major issues: data accuracy, measurement and shelf merchandising practices. Data accuracy must be addressed first, as it is the foundation for ordering and forecasting. We found major problems with retailers' product item data accuracy. There are a host of reasons for product data inaccuracy and combined they cause a significant problem.
We have found measurement of OOS to be a major issue. Manual audits and perpetual inventory measurement of OOS levels are inaccurate, do not focus on the lost sales associated with an OOS item and do not adequately point to solutions. We identified a variety of store issues that create perpetual inventory (PI) system inaccuracy, where actual on-hand inventory did not match the inventory in the database. The level of PI inaccuracy was stunning, as PI accuracy (where the PI exactly matched the on-hands) ranged from 32 percent to 45 percent in the four studies we conducted or examined.
Shelf merchandising issues continue to be a major contributor to OOS. First, most OOS sales losses are due to a relatively small number of items. Few of these items have adequate shelf space relative to their demand. We found that 91 percent of the retailers' SKUs are allocated shelf space based on case pack-out and 86 percent of the inventory on shelf is in excess of seven days supply.
Symens: Many vendors only make in-stock improvement a priority if they receive a poor mark on their score card. Because in-stock percentages are most often viewed in aggregate across the entire retail chain, a vendor with a 98 percent in-stock percentage can be mislead into a false sense of security. The reality is that last 2 percent can represent hundreds of stores and a huge opportunity for improvement.