Watching products fly off the shelf is every manufacturer’s and retailer’s dream. That dream, however, starts with ensuring that there are actually products on the shelf for customers to purchase. Today there is a lot of talk about endless “virtual shelves” that can be found on-line but brick-and-mortar retailers must deal with actual shelves and how to keep them stocked. Shelf space remains a limited and, therefore, valuable resource. Back in 2012, Jim Crowell, director of the Supply Chain Management Research Center at the University of Arkansas, told the SupplyChainBrain editorial staff, “For retailers, the notion of ‘in stock’ is quite different from that of ‘on-shelf availability.” [“Why On-Shelf Availability Is Critical for Retailers,” SupplyChainBrain, 17 August 2012] He went on to explain that in today’s complex marketing landscape, defining what constitutes a shelf isn’t as easy as one might think.
“[In stock] concerns whether product is in the building. While that might seem like a valuable metric, it misses out on the complexity of retailing today. So-called super centers might be displaying product in multiple locations, including at the register and at the ends of aisles. In addition, there are a variety of retail formats — including big-box, convenience and dollar stores among them — to consider. Add in the realities of technology and e-commerce, and it becomes increasingly difficult to determine exactly what constitutes a ‘shelf’. ‘In-stock could mean an item is on the premises but is in the back room,’ says Crowell, adding that there exists ‘a great abyss’ between the mere presence of product and its availability to the consumer.”
About the same time that Crowell was making his observations, Dan Alaimo wrote, “Having the right product on the shelf at the right time for the right shopper is the Holy Grail for retailers and manufacturers. But in a world of complex supply chains, on-shelf availability remains a challenge for trading partners.” [“P&G Increases On-Shelf Availability Using Store-Level Data,” CPG Matters, July 2012] Little progress has been made in that area over the succeeding years. “After all these years,” writes the editorial staff at SupplyChainBrain, “on-shelf availability remains a problem for many retailers.” [“Using Science to Achieve Retail On-Shelf Availability,” SupplyChainBrain, 26 September 2014] The staff draws this conclusion from an interview conducted with Rahul Tyagi, associate director of retail and CPG with Tata Consulting Services (TCS). In a more recent interview with Tyagi, he reiterated to SupplyChainBrain staff members that there are two primary reasons that retailers continue to face challenges with regards to on-shelf availability. “One is external and market-driven,” he told them, “and the second is more internal.” [“By the Numbers: How New Analytical Methods Can Help Improve On-Shelf Availability,” SupplyChainBrain, 19 December 2014] He continued:
“There’s been an explosion in buying channels over the last few years. Retailers that typically sold through stores and catalogs are now selling through mobile phones, internet and B2C. That has caused a fragmentation of demand. To capture all of these demands independently has become a big challenge. Secondly, there’s been a demographic shift. Within five years, the overall buying power will shift from the Baby Boomers to the Millennials. Given the nature of Millennials — very fickle and not too loyal to a particular vertical or channel — capturing their behavior becomes very important. And this is a very well-informed generation. They use all possible forms of information. In terms of internal challenges, there are a lot of things that need to come together. You have to have a perfect marriage of supply-chain planning and merchandising. The right mix of forecasting, replenishment and merchandising is not happening right now. These are the primary reasons why on-shelf availability is getting more important over the last few years.”
As noted above, on-shelf availability challenges are not new. An Accenture study notes, “On-shelf availability (OSA) issues have doubtless plagued retailers since the first shelf was constructed in the first store. Since then, a lot of talk and very little progress have been made in solving the problem.” [“Achieving High Performance through On-Shelf Availability,” 2009] When it comes to improving on-shelf availability, one thing that most observers agree upon is that the better analytics become the better the chances that OSA will be improved. IGD notes that improving on-shelf availability involves a lot of factors. “Although it sounds simple,” the company states, “in practice it is a complicated process affected by many interdependent factors including suppliers, retailers, warehouses and stores. Ensuring good availability is an industry-wide issue affecting all retailers and manufacturers.” [“On-Shelf Availability“] That complexity is why solving the on-shelf availability challenge has been so difficult. Technologies are just now being developed that can collect data on all necessary variables, analyze them, and provide actionable insights — the ultimate technology being cognitive computing. Tyagi told the SupplyChainBrain staff, “Statistical and analytical techniques have been available for a long time — fifty-plus years. But there wasn’t enough technology, hardware or maturity to handle that kind of processing. These are extremely computational-intensive techniques. Even 10 years ago, we didn’t have the processing power, and the cost of memory was too high. Now we’re able to do things that were unimaginable back then.”
As an example, SAP has created applications that provide “retail staff instant access to real-time on-shelf availability information.” [“Ensure on-shelf availability – with our mobile apps for retail store associates and managers,” SAP] According to SAP, store associates who use its applications “are alerted to on-shelf availability issues before they become problems. And managers can analyze product levels, detect patterns, and take rapid corrective action.” The Accenture study asserts, “The key to improvement is developing an understanding and identifying the underlying causes, which can then be addressed. Too often the symptoms of an issue are incorrectly identified as root causes or issues are optimized in silos with not enough awareness of the associated impacts. The challenge of improving OSA of stock while also minimizing end-to-end costs, often involves a complicated balance of trade-offs.” Cognitive computing can help correctly identify root causes so that solutions can be found and, as a result, can help companies address three major barriers that Accenture insists are keeping them from improving OSA. Those barriers are:
- Lack of common language: To overcome complexity issues, retailers need to develop a common language for OSA, with clear definition of terms being the most important first step for the value chain partners.
- Lack of collaboration between retailers and suppliers: The industry as whole needs to improve its levels of collaboration to better address OSA in the future.
- Disagreement over the root cause of problems that create poor OSA.
Walt Lentz, Senior Vice President, Supply Chain, at Ahold USA, and Brenda Hambleton, Chief Strategy & Marketing Officer at ES3, agree with other observers that on-shelf availability is “a multi-dimensional issue whose root causes are difficult to identify and even harder to solve.” [“Improving On-Shelf Availability Through Factory-to-Shelf Management,” ES3] Like Accenture analysts, Lentz and Hambleton found that their efforts to improve OSA resulted in the realization that “the determination of root causes proved far more challenging, requiring analytical rigor to gain a true understanding.” It should be clear by now that one of the reasons that improving OSA has been so difficult is that the tools required to address the challenge simply haven’t been available. The emergence of cognitive computing means that technology will no longer be an obstacle to tackling this persistent challenge. As the Accenture study concludes, “On-shelf availability is critical for survival in today’s increasingly tough retail marketplace.”