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7 Reasons the Supply Chain Continues to Fail at Simply Keeping Products in Stock -- And What to Do About It

Did you see the stockout video I shot recently? It's incredible how often I see scenes like that!

I’ve been in the retail industry for many years, and there’s one thing that continues to confound me: why does this keep happening so often? It's a major problem, and it needs to stop.

We've taken one step to address the situation by releasing our retail execution software; and another with our educational blogs and certification site. But let me ask you this: how can YOU help to reduce the stockout levels at the stores you service?

7 Reasons the Supply Chain Continues to Fail at Simply Keeping Products in Stock -- And What to Do About It

Let's take a look at what factors lead to an out-of-stock situation in the first place with 7 well known reasons products go out of stock. You can have a direct impact on some of the issues below, while others you might only be able to influence. But the key is developing a deep understanding of these issues -- and to be proactive in addressing the issues you can help solve. Your clients will thank you and you'll avoid going out of business.

  1. Product Data Accuracy.

Inaccurate product data is like pulling blocks from the bottom stack in the game Jenga. It creates an unstable foundation for ordering, stocking, and forecasting. Data quality has been improved over the past decade by inventory management programs and point-of-sale systems, but human error is still prevalent in stores that continue to rely on manual processes.

What can you do about it? Notice something. See something. Say something. Take action! Work with your mobile software provider to leverage technology that will spot inaccuracies and report them automatically -- and build a culture that accepts nothing less than perfect product accuracy across all of your stores.

  1. Ordering and Inventory Accuracy.

One report I read explained that product inventory inaccuracies ranged from 32 percent to 45 percent! "Phantom inventory" (when system on-hand is greater than physical product on-hand) is a major contributor to OOS – particularly store OOS – because the reorder system doesn't recognize how low store inventory levels truly are.

What can you do about it? Incorporate cycle counts by leveraging your mobile merchandising software. Sync up physical and system inventory on a regular basis -- and watch for damaged/misplaced products like a hawk. If it's damaged, buy it off the shelf or get it to the returns desk. If it's in the wrong place, get it back where it can sell.

  1. Demand Forecasting Accuracy.

Demand forecasts can differ from sales forecasts, many times because of the impact stockouts have on daily sales figures. When a shopper shifts her buying pattern due to a missing SKU, demand history is adjusted down from the sales history, so they won't match.

What can you do about it? Talk to shoppers. Get a sense for how their wants, needs, desires, and buying habits are changing -- especially at the store level -- and then get that information back to the store management as well as your management. This works much better if you leverage  your field sales software tools.

  1. Store and Shelf Replenishment.

Here's a big one. Poor store replenishment practices (from the distribution center or by MSOs) has occurred as much as 40% of the time. Infrequent or incomplete visits are a big factor. While technology can help identify this issue, it won't fire the people who need to be fired and hire the people who need to be hired. If you'r the field manager, that's on you. This problem has to be solved by better field team management.

What can you do? Using your workforce management software, create alerts for missed and/or late visits -- as well as any other anomalies with field service such as (but not limited to) GPS mismatch, payroll exceptions, visit out of time limits (too short/too long), certain questions being answered a certain way. Get with us about how to do this because there are probably 50 events we can help you watch for that will alert you to fraudulent and missed service. Then manage your team for success.

  1. Shelf Space Allocation.

Shelves are crowded, and fast-moving items have six times the lost sales due to OOS than their slower moving counterparts. Nearly 91 percent of SKUs are allocated shelf space based on case pack size, and 86 percent of inventory on shelves is in excess of seven days supply, according to one report. You've got to look at the planogram to find a solution to this problem.

What you can do? All of the above ties into helping ensure HQ has up to date information, now it's on you to ensure you provide the local demographics and psychographics to help category managers make store-specific decisions. Use your store-specific features within your field merchandising and sales software to create perfect execution of products that will sell well in each store.

  1. Planogram Compliance.

Speaking of planograms, research has shown that a 10 percent change in planogram compliance can result in a 1 percent change in your OOS levels. Categories that have high planogram compliance levels – such as 90 percent or better – shouldn't be affected. If you want to help your retailers with low compliance levels, recommend a change in planogram compliance to lower OOS.

What can you do? Send store specific planograms to each mobile device and drive higher compliance with the facts, focus, and follow up necessary to get the job done. Leverage 'speed scanning' software techniques that allow reps to scan each shelf tag and have the mobile software alert the rep to any variance.

  1. Item Management.

Stocking practices affect manual ordering systems. (So get away from your manual ordering system!) Retail execution experts point to three well-known links to OOS regarding stock management: 1) covering holes, 2) hiding product, and 3) shelf-tagging accuracy. Simply sticking to best practices here can reduce stockout levels by 40 percent. Although most stores have policies, many times they're not enforced. So it falls on you, fellow merchandiser, to right this wrong.

I promised you 7 issues, but this article would be incomplete with one last topic. So here's a bonus:

It's critical to mention here that there is a distinction between store out-of-stock (OOS) and shelf out-of-stock. When a store runs out of inventory, it's often due to -- could be a result of -- poor forecasting. When a shelf space is empty but inventory remains in-store, that's on us (everyone involved with getting product from the back room to the selling floor). If it's not in the store, there is not much you can do short of bringing in product yourself (if possible).  But what about when the store (or worse) the Distribution Center is out of stock? Well, that's on those people who manufacture, order, and ship the products. 

What you can do? All of the above feeds back into the informational systems that help those who manufacture, order, and ship to have adequate notice to plan for continuous shelf coverage. Make sure that you're always communicating with clarity to as many in supply chain management as possible by keeping your eyes and ears open, and documenting everything possible with your mobile software solution.

I encourage each of you to consider how you can help minimize stockouts and work closely with your clients to come up with a solid game plan.

It's important to point out that mobile retail execution systems like ESP have a direct impact on all of these issues. If you'd like help before you address this common issue, contact ESP and we'll be glad to assist you with a plan of action.

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