Retailers suffer the high cost of overstocks and out-of-stocks
Overstocks and out-of-stocks cost retailers $1.1 trillion globally in lost revenue, according to a new study from IHL Group, commissioned by OrderDynamics.
Overstocks are responsible for 3.2 percent in lost revenue for the average retailer, and out-of-stocks, 4.1 percent.
In North America, the loss from overstocks in the region is estimated to cost retailers $123.4 billion annually and out-of-stocks $129.5 billion although better forecasting tools have resulted in improvements to both metrics in recent years.
The blame for the $1.1 trillion in overstocks and out-of-stocks losses was placed on five areas:
Bad Processes ($284.9 billion in losses): Issues include inadequate refrigeration, improper training, inadequate relationships with intermediaries or disconnects between departments. Technology overhauls often complicate processes. Wrote IHL, "The vast majority of these issues are processes that made sense at one time, but either the business outgrew it or changed making the process a bottleneck."
People Problems ($259.1 billion): This "broad category" covers everything from employee mistakes to laziness, lack of training or outright fraud by offering discounts below what they should be. Improving training and skillsets, adding labor scheduling technologies and simply providing enough people to adequately serve customers were identified as some of the solutions.
Source: “Retailers and the Ghost Economy: $1.75 Trillion Reasons to be Afraid,” IHL Group
Data Disconnect/Systems ($222.7 billion): Approximately 60 percent of these issues are due to retailers not systematically measuring the impact of overstocks and out-of-stocks. Another quarter relate to tracking but not sharing the information across the enterprise. The remaining 15 percent are because systems can’t talk to each other. A single system to track underlying issues was offered as a way to reduce these issues.
Supplier Issues ($158.5 billion): Challenges include suppliers providing too much product against forecast, delivering at the wrong time or not being able to fill orders. Offshore manufacturing has intensified the challenges with out-of-stocks. Better integration of systems and data sharing between retailers and suppliers are expected to reduce these problems.
Theft ($161.6 billion): Globally, employee involvement is considerably higher than customer theft.
"These problems are within retailers’ grasp to solve, but it requires more than data, more than business intelligence," said Greg Buzek, president of IHL, in a statement. "It requires understanding the root causes of inventory and data disconnects and implementing the technology solutions and operational changes to address these revenue-limiting issues."
- New Research Report: Retailers Lose $1.75 Trillion in Revenue Worldwide Due to Overstocks, Out-of-Stocks and Returns – OrderDynamics
- Report: Retailers and the Ghost Economy: $1.75 Trillion Reasons to Be Afraid (report) – OrderDynamics
Which emerging technologies, organizational realignments or other changes will drive the next leap in reducing losses from overstocks and out-of-stocks? Are technological or non-technological issues the bigger hurdle?