According to consultancy Roland Berger, selling out of products can cost retailers up to $75,000 a year for every supermarket. If they want to reduce the cost of out-of-stock incidences, retailers should adopt efficient category management and supply chain management systems. Wal-Mart’s Retail Link program is a best practice example.
A new study finds consumers cannot find the product they want to buy 7.4% of the time they shop.
A new study, conducted by consultancy Roland Berger, audited 1,600 items sold in four major retail chains such as Albertson’s, Publix and Winn-Dixie Stores. It found that the out-of-stock rate during promotions is double the rate during non-promotion days – 13.1% versus 7.4%. Even worse is the Monday rate of more than 17% .
On average, the top 10% of highest turnover items accounted for 45% of out-of-stock products. Overall, the study concluded, an improvement in out-of-stock conditions could offer retailers an additional $6 billion in nationwide potential sales.
Addressing the cause of these high out-of-stock rates is tricky: they arise out of an array of issues between manufacturers and retailers. Stocking labor, appropriate shelf space allocation, delivery frequencies and merchandising support are just a few issues need to be ironed out.
However, one key point is central to any solution – implementing continuous category management that provides near-real time data on product availability, in place of the current episodic, time-lagged reports.
Wal-Mart has long used Hewlett-Packard UNIX application servers that give suppliers direct-dial access to the relevant part of the sales database. The so-called Retail Link allows detailed and timely analysis of sales information to produce highly accurate demand forecast. The strong integration between Wal-Mart and its suppliers allows shorter lead-times, lower category management costs and lower out-of-stock rate.
While these category management technologies can be costly, so are the lost revenues caused by out-of-stock situations. Furthermore, constant out-of-stock experience may result in decreased loyalty and consumers switching to another supermarket. In this age of decreasing profit margins, out-of-stock may mean out-of-business.
Related research: Datamonitor, 2001: eSupply Chain in Consumer Markets
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