On-Shelf Availability Remains a Significant Challenge across Retail

Stephen DeAngelis

April 13, 2016

“Retailers are facing unprecedented pressure to increase sales, decrease costs and retain customers,” writes Ted Moyer, a solutions consultant at Market6. “The battle for profits and shopper loyalty has never been more fierce.”[1] Here’s the conundrum: Inventory comes with a price tag; but, without inventory you have nothing to sell (hence, no profits). Getting inventory right remains a challenge for most retailers. And, even if they get the numbers right (i.e., have the right amount of products in stock), retailers may still face an on-shelf availability challenge. A few years back, 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’.”[2] 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 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.”[3] A few years later, the editorial staff at SupplyChainBrain, noted things hadn’t improved. “After all these years,” they wrote, “on-shelf availability remains a problem for many retailers.”[4] Moyer, writing specifically about the grocery industry, reports out of stock situations continue to plague retailers and result in poor on-shelf availability:

“Research from the Trading Partner Alliance consisting of FMI and GMA found that the product out-of-stock rate remains at an average of 8 percent and exceeds 10 percent for promoted items. Supply chain complexity, data silos and disparate business systems are resulting in empty shelves. Chronic out-of-stock items also have a negative impact on buyer sentiment and behavior; the same Trading Partner Alliance research revealed that shoppers rank product availability among the top three factors in deciding where they shop for groceries. However, every time a shopper enters a store, one out of every 12 items on their shopping list will not be on the shelf, and this number drops to one in 10 for items featured in store promotions.”

Some retailers believe the path to improved on-shelf availability is simplification. Paul Ziobro (@pziobro) reports, “Target Corp. is trying to simplify things. The discount retailing chain is cutting the number of sizes, flavors and in some cases brands on its shelves to help fix out-of-stock issues plaguing its 1,800 stores.”[5] He goes on to report that other stores, including Walmart, are also culling their products. Manufacturers are taking notice of these simplification activities and are responding. Ziobro explains, “Consumer goods companies, such as Procter & Gamble Co., are in the process of narrowing their focus and eliminating unprofitable product categories. Recently, Procter & Gamble eliminated a sixth of its Olay skin-care products, from acne washes to facial scrubs.” Ziobro warns, however, that simplification can backfire. “About six years ago,” he reminds us, “Wal-Mart embarked on its ‘Project Impact,’ focusing on carrying just the most-popular products in store, as well as uncluttering aisles to appeal more to a slightly wealthier clientele. The change backfired, as shoppers grew upset at not being able to find their favorites.”

Moyer points out that suppliers and retailers are in this battle together and the sooner they understand that the better off they will be. “To effectively solve the problem of out-of-stock items and empty shelves,” he writes, “retailers and suppliers alike need to tackle the root cause — a lack of visibility into data — by coordinating with one another to ensure cohesive, integrated processes. Achieving on-shelf availability requires instant access to intelligence that encompasses a combination of unified data, analytic insights and collaborative decision making.” There are a few key words in Moyer’s recommended solution including coordination, visibility, data, and instant access. Each of those desired capabilities can be achieved through the employment of a cognitive computing system. A good cognitive computing system can orchestrate disparate data, analyze it, automate processes, and provide actionable insights to decision makers. IGD reminds us just how complicated achieving on-shelf availability can be. “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.”[6] Moyer agrees that improving on-shelf availability is easier said than done. He writes:

“Clearly, addressing the out-of-stocks problem is more nuanced and complex than it may appear at first glance. By adopting a new approach to retailer-supplier collaboration and connecting information, silos, suppliers and retailers can analyze demand forecasts and inventory at a more granular level to find out where out of stocks are most likely to occur and adjust to reposition and prioritize products accordingly. Collaborative planning and decision making has long been an obstacle for CPG suppliers and grocery retailers. However, shared analysis of integrated data and immediate access to those insights has the potential to change the game when it comes to on-shelf availability.”

With the maturation of cognitive computing systems, supplier/retailer collaboration across the board is a real possibility. Does it work? Anecdotal evidence says it does. A few years back Safeway and Pepsi collaborated using visualization software and found that out-of-stock situations decreased and sales increased as a result.[7] I recommend starting with a proof of concept project, like Safeway and Pepsi, to demonstrate the value of improved collaboration. Starting small allows you to tweak results before scaling the project to include all products and suppliers. Moyer concludes, “Collaborative operations between suppliers and retailers are paving the way for an ‘always on’ environment capable of uncovering new, real-time insights, improved decision making and measureable results that translate directly to the bottom line.”

Footnotes
[1] Ted Moyer, “Improving On-Shelf Availability: The Next Evolution Of Retailer-Supplier Collaboration,” The Shelby Report, 15 March 2016.
[2] Jim Crowell, “Why On-Shelf Availability Is Critical for Retailers,” SupplyChainBrain, 17 August 2012.
[3] Dan Alaimo, “P&G Increases On-Shelf Availability Using Store-Level Data,” CPG Matters, July 2012.
[4] Staff, “Using Science to Achieve Retail On-Shelf Availability,” SupplyChainBrain, 26 September 2014.
[5] Paul Ziobro, “Target Corp. Culling Products in Its Stores to Help Resolve Out-of-Stock Issues,” The Wall Street Journal, 2 March 2016.
[6] Staff, “On-Shelf Availability,” IGD, April 2011.
[7] Deloitte, “Data Visualization Helps Safeway Keep Shelves Stocked,” The Wall Street Journal, 3 December 2013.