Retailers have almost everything. Products that match their consumer preferences, the right price points, and targeted promotions based on an event calendar, but one thing that may be missing is that the product being on the shelf. This is especially common with Fast Moving Consumer Goods (FMCG). The Out- of- Stock (OOS) situation should not be a last 50 feet challenge. It needs end-to-end inventory management to ensure customers find what they want, when they want and where they want.
The 2012 US Supermarket Experience Study from The Retail Feedback Group[i] found that OOS has a major impact on sales and is the most significant metric to negatively impact shopper satisfaction. The study said that shoppers who found all the items on their shopping list rated their experience higher than those who did not. Fifty-percent of shoppers who didn't find stock diverted their purchase elsewhere; 38% continued without the item while 12% bought a different brand/size.
The cost of OOS is significantly high and extends beyond a lost sale. A study by the University of Colorado at Colorado Springs in collaboration with the IE Business School, Madrid for P&G[ii] pointed out that "retailer costs include the time employees spend trying to satisfy shoppers who ask about a specific OOS item. For a typical US grocery store, the cost amounts to $800 per week."
It is time for retailers to roll up their sleeves and get their hands dirty with an end-to-end strategy for their supply chain. The most successful inventory programs are those that match availability to seasonal requirements and promotions, and match the shifting needs of customers to bring down inventory levels yet ensuring that customers do not experience an OOS situation.
The elements of successful end-to-end supply chain management rest on a holistic understanding of demand forecasting and planning, logistics, inventory and shrinkage management, returns management, sourcing and supplier relationships, along with complete visibility into the supply chain across functions. Increasingly, the need for track-and-trace capabilities to meet regulatory requirements and safety norms is being added to the scope of end-to-end supply chain management.
In order to harmonize and integrate the entire supply chain, from supplier to point of sale (POS), from sales forecasting to promotions, from human resource to finance and the right technology platform, which can integrate these disparate functions and the underlying technology components, is needed.
Among the most critical components for retailers today, especially in the FMCG sector where the supply chain must be completely customer-focused and follow a pull model, is the relationship with manufacturers and suppliers. Here is the Number 1 reason why this is important: retailers who don't have buying power to keep stocks for unpredictable or latent demand need a high level of flexibility in product and SKU availability, consolidation of demand and delivery options (not just to the POS but even directly to the customer's home).
This flexibility and need for near real-time response, calls for an extremely high level of collaboration between the manufacturer/supplier and the retailer. This is especially true in a global environment where it is important to bring down product delivery times. Providing the manufacturer with insights into your own customer demand is a solution to bring down friction in information exchange and not miss market opportunities without inflated inventories. What are the platforms that enable flexibility? How do you ensure that the collaboration is open to continuous change and is re-configurable? In a global environment, how do you ensure that changing regulatory norms are adhered to? What parts of your business need re-engineering to be able to support the manufacturer-retailer collaboration? How do you measure the efficiency and effectiveness of a collaborative approach? How you answer these questions would ultimately decide your customer's 100% fulfilled shopping experience!