Through a special arrangement, presented here for discussion is a summary of a current article from Supply Chain Digest.
It is obvious to me that the out-of-stock (OOS) problem is getting worse for many retailers of late. Anyone else go to certain stores and see as much as 75 percent 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.
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.
What have I left out?
It is a complex ecosystem for sure, yet I believe a "unified theory" (with a nod to Einstein) can be developed.
Here's a clue: In a videocast in earlier April, Joe Shamir, CEO of ToolsGroup, used a slide along these lines, which showed how less than 100 percent service levels at the vendor leads to more service degradation at downstream echelons all the way to the store shelf.
An important point from this graphic is that it isn't just an OOS problem. 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.
That latest Gruen study found out-of-stock rates in the CPG sector of 8.3 percent, slightly worse than the level found in 2002. The 2002 study also quantified consumer response to an OOS.
But of course, the response varies significantly by product/retailer type. If a can of soup is out of stock, a shopper might easily grab another flavor from the same vendor (good for the vendor and retailer), or the flavor they want from another brand (not good for the vendor, good for the retailer). If the size or color a shopper wants is missing at an apparel store, it is much more likely to result in no substitute purchase at all. As Mr. Shamir pointed out, for long tail items, where demand is very intermittent, a stock out might result in no lost sales for some period, because there is no demand.
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.