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  Supply Chain Trends and Issues: Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues  
 
 
  - January 20, 2009 -  

Supply Chain News: Just How Big is the Out-of-Stock Problem in Retail?



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It’s Worse than the Retail Industry Thinks, According to New Study from IHL Group; New Fodder for RFID? Beyond Just Consumer Packaged Goods

 
     
 

SCDigest Editorial Staff

SCDigest Says:
Such research is certainly likely to add support for RFID supporters in the consumer goods-to-retail channel, where the focus is increasingly on in-store execution and shopper experience, rather than supply chain efficiencies.

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The consumer goods-to-retail supply chain has been battling the out-of-stock problem for decades, with various initiatives from Efficient Consumer Response to CPFR, to RFID, all basically tackling the same problem, which does not seem to ever get a whole lot better. (See Supply Chain Graphic of the Week - Two Decades of Consumer Goods-to-Retail Supply Chain Improvement Programs.) But, is the problem even larger than many have come to believe?Yes, according to a new report from the researchers at IHL Group (Franklin, TN). In its new report, What's the Deal With Out-of-Stocks? (which must be purchased), IHL analysts Lee Holman and Greg Buzek, say “Retailers are in denial about out-of-stocks.”In fact, they say their study found that the true out-of-stock rate experienced by consumers is 17.8%, which is 123% higher than the out-of-stock rate claimed by retailers for themselves.This may be, in part, due to a more expanded definition of out-of-stocks. Holman and Buzek define out-of-stocks as basically being any condition that prevents the consumer from purchasing a product and leaving the store without making a purchase of that product. That includes:

  • Shelf is emptyThe consumer saw item, but it was locked or consumer could not procure the item as there was no help availableConsumer found someone to help, but they couldn’t find the item
  • The price/offer on the shelf did not match the ad or online price

This broader definition of out-of-stocks would naturally raise the percentage above the measures that look more narrowly at shelf availability, and also bring up other issues beyond supply chain and in-store logistics, such as staffing and marketing synchronization, that also lead to lost sales.

(Supply Chain Trends and Issues Article - Continued Below)

 

 
 
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View Across Segments

In our view, out-of-stock data is too often focused narrowly at the consumer packaged goods segment of the value chain, with much less attention to other types of consumer goods-to-retail product categories.

This report looks at other sectors, and finds, for example, that more than 1 in every 5 consumers (21.2%) coming into the door of Consumer Electronics retailers leaves without buying at least one product they intended to purchase due to out-of-stocks – an incredible number, and one many consumers can probably relate to based on personal experience.

The difference in the numbers between retailers in a sector can be significant. As shown in the graphic below, for example, entertainment retailer Fry’s has an out-of-stock rate of about 13%, while at the other end of the spectrum, Office Max has a OOS rate of over 30% (in fairness, the two retailers carry very different product lines, though the report puts them in the same category).

There were also big differences in the grocery store channel, among chains that obviously carry nearly identical product categories.

Ahold, for example, had an out-of-stock rate of just 7.4%, according to the IHL research, whereas Food Lion and A&P had OOS levels of 22.8%.

In aggregate, the study found that fully 9% of survey respondents said that in the past 12 months they had stopped shopping at a particular retailer due to their out-of-stock situation.

Such research is certainly likely to add support for RFID supporters in the consumer goods-to-retail channel, where the focus is increasingly on in-store execution and shopper experience, rather than supply chain efficiencies.

Other surveys have shown, for example, that a significant percentage of store out-of-stocks at shelf level are really for products for which inventory is available in the back room, but has not been brought to the selling floor – an area where RFID and smarter store applications could make a big difference.

Do you think out-of-stocks should be more broadly defined than just shelf-level inventory? Do you think the OOS problem is really bigger than previous studies have estimated? What are the best answers for manufacturers and retailers? Let us know your thoughts at the Feedback button below.

 
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