From a vendor's perspective, we see three barriers to tacking OOS: first, vendors need timely access to store- and item-level data; second, on-hand data provided by the retailer must be accurate; and third, vendors need the tools to quickly filter the data and create actionable plans.
Haedicke: In a traditional grocery environment, a buyer gets a bonus every quarter based on trade deal funding and inside margin. Inside margin is slotting. So you want to get as much slotting funds as possible, and the incentive is to add new items. They wind up getting too many SKUs which leads to a lot of OOS because you can't carry that much inventory in the warehouse. It's tough to keep track of.
That would require a radical change in commission procedures, wouldn't it?
Haedicke: Lee Scott of Wal-Mart made the decision 10 years ago to bonus these guys not on inside margin, but on net profitability. They will turn inventory quickly and only add SKUs that are needed. Plus, when manufacturers go to Wal-Mart, they don't want trade deal funding. They want net cost of goods and nothing else.
What new solutions can help reduce OOS?
Togneri: In the age of automatic replenishment, OOS is largely a product of the lack of store-level empowerment. Creating an environment where senior store-level employees are compensated in part upon store-level metrics like OOS (in addition to shrinkage, revenues, etc.) creates community-based-retailer GMs. This is critical to the success of every retail operation. OOS, in this framework, are addressed through a direct connection of incentives aligned with attention to detail.
To be certain, technological advancements in RFID will continue to increase the tools that will support issue recognition. But, ultimately someone needs to ensure correct item counts are maintained in systems, that product is merchandised in the manner dictated by shelf layout decisions and that unusual shopping patterns can be addressed quickly by store-level identification and adherence to correction procedures.
Technology and advanced analytics will give us the other tools to solve the problem, but the front lines of retail need to be actively engaged with a commitment to seeking solutions through intolerance for OOS.
Stegeman: Out-of-stocks are often a result of some form of miscommunication between manufacturers and retailers. By changing the way we work together, beginning with the sales call and our points of connection, we can minimize the supply chain disruptions that cause OOS.
At the 2006 GMA Executive Conference, Colleen Wegman and Tim Smucker presented a new vision for trading partner collaboration. Recognizing the potential value of developing shared strategies and working closely together to define joint goals and measures, they, along with Procter & Gamble, began pilots to prove this vision.
Titled New Ways of Working Together, this concept is a framework consisting of four strategic choices, which guide trading partner work plans, and two tracks, which define levels of interaction and sharing between companies and across the industry. The framework maintains:
- Focus on the customer: Satisfying the consumer delivers value to both the manufacturer and the retailer;
- Prepare our people: The effectiveness of New Ways of Working Together is limited only by the effectiveness of our organizations
- Connect our business information: Establishing connections between trading partners through shared information and use those connections to eliminate disruptions and enable growth, using standards-based information initiatives;
- Share our supply chain: Trading partners should aspire to operate their supply chains as if they were one company.
Symens: While there is no silver bullet for tackling OOS, far too many initiatives are stalled because the effort required to analyze on-hand for thousands of stores seems overwhelming. But any complex problem can be broken down into smaller more manageable parts and significant progress can be made by concentrating on only those stores with the highest velocity of sales.
In general, a few hundred stores cause a majority of the OOS issues and those stores can be identified, studied and restocked proactively. Patterns often emerge where stores are chronically out of stock. In those cases, the vendor can work the retail replenishment team to increase the order size or replenishment frequency.