Apr 19, 2013

Dan Gilmore speaks for the supply chain - let's do better on out-of-stocks

I don't often base one of my posts on someone else's article, but Dan Gilmore in Supply Chain Digest this week pretty much hit the nail on the head -- at least in describing the problem. Out-of-stocks are rampant and supply chains aren't executing well enough. Let me share some of Dan's analysis: 
A Unified Theory of Out-of-Stocks?
...it is obviously to me that the OOS problem is getting worse for many retailers of late. Anyone else go to certain stores and see as much as 75% of the pegs on a wall display empty these days? Amazing, really, here in the 21st century supply chain...
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.
s part of the research I did on OOS in the last few weeks, I found an article from 2010 in the International Review of Retail, Distribution, and Consumer Research from several European academics titled "Forty Years of Out-of-Stock Research - and the Shelves are Still Empty."That about says it all. The paper documents that despite study after study, and retail initiative after initiative, the needle has not really moved... 

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...
...there is an equal and opposite reaction in terms of overstocks - too much inventory - either from the same issues that cause OOS or as a tactic to minimize the level of out-of-stocks...

Here's some data from a Gruen study Dan cited: When a customer's choice is out of stock, 9% do not purchase the item, 31% buy the item at another store, 15% delay purchase, 19% substitute [item from] same brand, 26% substitute another brand.

But my research and listening to some of these experts convinces me that we can better tie the store side issues with the supply chain issues, and move the OOS ball further down the field in a more integrated and mathematical way. More soon.
Why haven't we done a better job improving out-of-stocks? Is there an opportunity to do a better job of connecting all the dots? 

I submitted my comment about how lean manufacturing principles, properly understood, encompass supply chain speed and accuracy. The growing expertise and published information about lean supply chain answers Dan's questions. The lean literature explains why systems based on push systems and long range forecasts get stuck and why pull systems are customer responsive. And speed up cash flow.

Dan's editorial is here -- read it and add your perspective to the debate.

Copyright @ 2005-2014 by Karen Wilhelm