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Saturday, October 10, 2015

The Cure For Out Of Stocks

Let’s start with the “disease”! Once deemed incurable and just treatable, out of stocks and overstocks for retailers have always been a big hairy problem. If you do not have the right mix of product or specifically the style, size and color as in the case of footwear and apparel you pretty much lose the sale, add unneeded cost and in many cases lose the customer too! How bad is this “disease”? IHL’s President, Greg Buzek, discussed key points of the inventory distortion study in a recent webinar titled, “Inventory Distortion ― Retail's $800 Billion Global Problem.” The key points included:
·        Out-of-Stocks make up 56% of the $818 Billion figure, or $456.3 Billion.
·        Overstocks account for the remaining 44%, or $362.1 Billion.
·        Worldwide, nearly $1.5 trillion of merchandise annually is in an overstock position that creates a loss in revenue.

“The study defined out-of-stocks as any situation wherein a consumer enters a retail setting with the intent to buy a specific item and does not find the item. Overstocks were defined as any situation wherein a retailer has on hand more stock of a particular item than is supported by current demand.”
These are massive numbers for loss of sale and bloated inventory. With all the advancements in planning and replenishment systems why is this not getting better? The answer is, you can have the greatest algorithms in the world but if your data is wrong so are your predictions. People manually counting items in the supply chain take too much time; it is too expensive and is also fraught with error.  Meaning it does not work. Technology does have an answer and it is item-level RFID. This “medicine” today is best used in the apparel and footwear retail segments because of the physics associated with these products (no liquids and limited metals) along with the product complexity of style, size and color.  The return on investment is the big question that is circling around and requires close examination before diving in. Undertaking item-level RFID has a common perception of being too expensive due to the cost of RFID tags. Also, then there are the other costs which includes software, hardware, services, store fit-up, process changes and training. Some retailers are hesitating to raise Item-Level RFID in their budgeted spending priorities.   “Let someone else sort this out and I will jump in when tags get down to five cents.” Lack of concrete information about the benefits and fear of the complexity are the main reasons for this non-action decision for item-level RFID.

Let’s review more about the extended problems that being out of stock is actually causing today versus just a few years ago. The average established retail enterprise wide real-time inventory accuracy is sixty to eighty percent for products in the store. The omni-channel model in retail is now the widely commonly discussed strategy and includes implementation models such as:  ship-to-store for pick –up and click – ship from store for next day or even same day delivery.  When you accept these measured in-supply chain and in-store inventory accuracy numbers and multiply them across a chain, retailers are hemorrhaging profit, losing customers and might not even know it.

Below is a chart from a recent Retail Systems Research (RSR) study showing retailers ratings of importance versus the actually visibility of inventory information forget it is only really sixty to eighty percent accurate at the store. What you see is huge chasms between what retailers now believe they need and view as important to what they actually have visibility of.

What this means is that on average a retailer’s current ability to know what is in stock and on a shelf is at best a fair approximation. It has been cited by a number of sources that the consumers biggest gripe with retailers is out of stock, not can I check out with a store associate using a tablet POS.
If a retailer wants to reduce over and out of stocks the only credible answer is to employ item-level RFID solutions. A retailer must ask themselves the question can they afford lost sales, excess inventory and potential loss of customers. The answers and hard facts are out there with those retailers that have deployed item-level RFID technology and those solution providers that have successfully assisted retailers to achieve dramatic results in sales lifts removing out of stocks, shrink reduction as well as inventory reductions.  

In any “technology adoption curve” there are always the innovators, early adopters, early majority, late majority and laggards. If you are in either the late majority or laggard categories you will be at a significant disadvantage to your competitors who did choose to begin the process of implementing item-level RFID in 2013-2014