Every retailer knows that they can’t sell what they don’t have. If a product is not on the shelf when a customer wants it, the likely result is a lost sale. Dan Gilmore, Editor-in-Chief of Supply Chain Digest, believes that the out of stock (OOS) “problem is getting worse for many retailers.” [“A Unified Theory of Out-of-Stocks?” 19 April 2013] Gilmore calls this situation “amazing” considering all of the technology currently available. He continues:
“E-commerce has added a wrinkle to the retail OOS challenge, as now the issue isn’t just products not being on the store shelf, but now potentially ‘not in stock’ at the e-store as well. An OOS there likely has an even bigger impact in terms of lost sales than it does at brick and mortar retail.”
Gilmore points out that in this instant-gratification world, consumers don’t ask for “a rain check at a brick and mortar store for sale items that go out-of-stock” like earlier generations did. Gilmore points out that today’s consumers “go elsewhere, or don’t buy at all. So the penalty for OOS rises.” I wonder how many younger shoppers even know what a rain check is? He goes on to note, “Out-of-stocks are not at all only a retail issue, it is a core supply chain and inventory challenge for virtually every company.” In his article, Gilmore refers to a research paper written by Jesper Aastrup and Herbert Kotzab, entitled “Forty years of Out-of-Stock research – and shelves are still empty.” [The International Review of Retail, Distribution and Consumer Research, Volume 20, Issue 1, 2010] Gilmore states that the study’s title pretty well sums up his feelings.
To underscore how difficult the out-of-stock challenge can be, Gilmore notes that Walmart, widely recognized as a leader in supply chain innovation and implementation, still struggles with the problem. He writes, “[If] mighty Walmart’s supply chain is mightily challenged with OOS, no wonder the rest of us are too.” To learn more about Walmart’s struggles, Gilmore points to an earlier Supply Chain Digest article entitled, “Walmart US Chief Says Sales are Suffering Because of Challenges in Keeping Stores Shelves Stocked.” [4 March 2013] Gilmore continues:
“Here’s why this issue is so complex: it is an equation that involves forecasting, ‘long tail’ management, retail in-store execution, uncertain and/or difficult to calculate financial impacts, different impacts depending on product category, different impacts on retailers versus manufacturers, the Bullwhip Effect, the Perfect Order, vendor variability, store inventory accuracy, overstocks, collaboration, etc.”
In other words, there is no one cause that can be pointed out as the culprit creating out-of-stock situations. A large part of the problem, however, is the fact that there is not enough information sharing among stakeholders. One frequent result of information starvation is the Bullwhip Effect mentioned by Gilmore. The Bullwhip Effect is characterized by the depletion and rapid restocking of inventory. Loretta Chao and Lorraine Luk explain:
“This frustrating phenomenon occurs when falling customer demand prompts retailers to under-order so as to reduce their inventories. In turn, wholesalers under-order even further to reduce theirs and the effect amplifies up the supply chain until suppliers experience stock-outs – and then over-order in response. The effect can ripple up and down the supply chain many times.” [“Acer Reassesses Inventory Policies,” Wall Street Journal, 6 June 2011]
Until true demand driven supply chains are implemented, the best that can be hoped for is better collaboration that will help dampen the consequences of the bullwhip effect. Brent Nagy of TMC, offers “5 tips for successful Demand Smoothing”:
“1. Dedicated Assignment. Asking a supply chain or transportation employee(s) to fit this forecasting and planning responsibility in amongst their day-to-day tasks typically does not work well. Assign someone who has time to make it a priority.
“2. Supplier and Carrier Collaboration. Give ample warning to vendors and Tier 1 carriers so they know what’s coming. Often, they can make their own adjustments to help with surges in your demand.
“3. Metrics Monitoring. Understanding route guide and tender, fill rate, CWT and visibility by way of track and trace and potential late loads all act as ways to manage and isolate areas of concern and success. …
“4. Use Proven Modeling Tools. While it seems simple, there is a science to Demand Smoothing. There are TMS-related technologies and processes that can be powerful tools.
“5. Project 100 Days Out. Work with sales and manufacturing teams on the inside and with suppliers and carriers on the outside to create a Demand Smoothing plan that looks out 100 days.” [“Planning for the Bullwhip Effect,” TMC Managed TMS Blog]
Walmart must believe that better collaboration with suppliers will help with its out-of-stock challenges. It recently announced “suppliers who receive appropriate training will be able to use their smartphones to perform many of the functions that currently require assistance from a store associate armed with a bulky Telxon tracking device.” [“Walmart Gives Vendors Access to Backroom Inventory Data,” by Tom Ryan, RetailWire, 15 April 2013] Ryan reports, “Beyond real-time access to data, suppliers and third-party merchandising firms will be trained to use the devices to handle basic practices such as printing missing shelf labels for items, stocking their products, and ensuring their displays are correct.”
My company, Enterra Solutions, offers a few products that can help address some of the challenges associated with out-of-stock situations. Our Pre-Inventory Prediction (Available to Promise) and EnterraConnect™ modules represent critical components of Enterra’s Supply Side Visualization capabilities. Pre-Inventory Prediction utilizes advanced predictive capabilities. The system can monitor your vendor supply chain prior to warehouse delivery in order to detect shipping delays and identify the perturbative effect on customers. It then recommends remedies to minimize the impact of delivery delays, and it proactively assists with avoiding order cancellations through the renegotiation of cancel dates or by suggesting an alternative product. In addition, the system helps to reduce customer service time further by automating the tedious task of allocating limited-availability inventory across multiple order lines, purchase orders, and deliveries. This not only helps your organization meet current demands, but supports future growth by creating a positive experience for the customer. EnterraConnect extends supply chain visibility to the manufacturing vendor by tracking key milestones around production. This solution monitors supply chain prior to warehouse delivery to minimize the impact of delivery delays.
- Attempts to mitigate “product not available” issues
- Monitors shipping vessels, trucks, and rails to detect shipping issues
- Predicts the effects of shipping delays or production delays on customer orders
- Recommends remedies to minimize the impact of delays
- Suggests container unpacking priorities
- Allows for pre-allocation of future inventory deliveries (Available to Promise)
- Automates the task of allocating limited-availability inventory
- Extends milestone tracking to manifesting vendors to detect and respond to production delays.
Enterra’s In-Flight Optimization offering addresses challenges in fast-paced sectors such as food, where risk of spoilage and daily replenishment factors are critical, having a system that can identify in-flight process optimization opportunities can mean the difference between realizing a highly profitable supply chain or having no supplies at all. Enterra’s In-Flight Supply Chain Optimization Module is designed to predict risks associated with delivery delays and inventory decline to protect against product deterioration and/or depletion. The offering optimizes time-critical supply chains to reduce product expiration and improve delivery results.
- Predicts intra-day at-risk customer service issues
- Reduces possible goods spoilage
- Allows for more frequent inventory replenishment
- Enables dynamic production changes to maximize deliveries
- Allows for intra-day optimization in fast-paced sectors such as food
In today’s fast-paced world, more frequent inventory replenishment is becoming a necessity. Robert J. Bowman, Managing Editor of SupplyChainBrain, notes, “For retailers, the bar just keeps getting raised. Supply-chain excellence used to be about filling orders seasonally. Then weekly. Then daily. Now we hear of merchandise being replenished multiple times a day.” [“In Modern Retail Replenishment, Once a Day Isn’t Enough,” 15 April 2013] He concludes:
“Intra-daily replenishment isn’t easy to do, despite the wealth of data that flows through a typical retailer’s supply chain today. Merchandisers face two discrete challenges. One is technological, involving the systems needed to wed real-time demand data with planning. The other is physical – are the store and its distribution centers set up to pick, load and move product multiple times throughout the day, within extremely narrow windows? … Intra-day replenishment isn’t only for brick-and-mortar operations. E-commerce merchandisers can become more agile in their fulfillment strategies as well. … Intra-day replenishment might seem exotic to U.S. retailers today. As with every other advance in supply-chain efficiency, however, it’s likely to become a critical part of many merchandising strategies. While the future is impossible to predict, you can count on one thing: retail supply chains aren’t going to get slower.”
Another Enterra product that can help with inventory management is our Productive Inventory Module, which helps to maximize the relationship between manufacturer and retailer by helping to determine the optimal product mix for your customer base. By integrating a menu of syndicated data, such as detailed store-related factors, local demographics, point of sale information, and other various historical data, the solution is able to identify underperforming products and better predict demand, which helps your organization maximize its shelf space. This product maximizes the productivity of shelf space and helps to optimize the retailer/manufacturer relationship.
- Eliminates or fixes underperforming products
- Looks for “turned off” products
- Helps to better predict demand
- Reduces spoilage
Even when a product is “in stock” if it isn’t on the shelf and readily available to consumers, sales can still be lost. That’s why Professor Jim Crowell, director of the Supply Chain Management Research Center at the University of Arkansas, reminded the editorial staff at SupplyChainBrain, “the notion of ‘in stock’ is quite different from that of ‘on-shelf availability’.” [“Why On-Shelf Availability Is Critical for Retailers,” 17 August 2012] Crowell stated that knowing a product is in the building “might seem like a valuable metric, [but] it misses out on the complexity of retailing today.” The article concludes:
“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. Studies by the Grocery Manufacturers Association and participating retailers have helped to define some of the complexities involved in making stocking determinations today. Beyond the physical shelf, retailers are beginning to offer order and pickup services that bypass traditional store setups. Response to online orders can be as quick as two to three hours. ‘Folks are starting to say, “Let’s get the inventory as close to the customer as we can,”‘ Crowell says. In theory, consumers can pick up product at multiple locations. Such a broad network of options is expected to become more prevalent in the years ahead. For multichannel retailers, the challenge becomes how to support both kinds of order streams. Retailers are still grappling with the question of how to manage fulfillment to physical stores as well as the growing volume of internet orders. In addition, they are experimenting with different sizes of stores – yet another complication when it comes to executing efficient inventory management.”
Dan Gilmore is probably correct that that out-of-stock situation is getting worse as supply chains get more complex. Unfortunately, there are no silver bullet solutions for inventory management; but, new technologies are available that can help.