Walmart CEO, Bill Simon recent revealed in an internal memo that Walmart’s out-of-stock position was a problem and one that is getting worse, not better. Kudos to Mr. Simon for being a leader and recognizing something that most of us in the retail industry are aware of, namely that despite flow casting, just in time, demand planning processes, there are still too many items missing in action when you walk down the aisles of your favorite store.
As with any retail issue, a piece of this problem is out of the control of the retailer. Recall items, pack changes, and other manufacturing problems can be a source of the out. But the majority of the out-of-stocks I see in stores are due to too few associates in the store, actually using the systems they have available to them, to replenish a sold out item in a timely fashion.
Past research on the topic of out of stocks has placed the average number of items missing from the shelf at about 7% at any time. If you are a high volume retailer, such as Walmart, the 7% number is likely to be woefully conservative. But even at 7%, and knowing that only about half of the shoppers will substitute another item for the one missing, you are talking about huge lost dollars sales. As Mr. Simon puts it, out-of-stocks are inherently a “self inflicted wound”. Unlike many others, retailers can control and recover much of the damage inflicted by missing items. In order to do so they must first recognize it as a problem and monetize the problem, as Mr. Simon has done.
Then and only then can you begin to allocate resources against this issue, knowing that there is a huge ROI waiting at the end of the process. Being the opinionated guy that I am, here are a few suggestions as to how address out-of-stocks more effectively.
1. First, do not solely rely on systems and reports to fix the problem. Some person or persons needs to be accountable and have some addition human resources available to execute the fix.
2. Audit the stores individually and identify chronic outs perhaps due to pack size of the product and allocation of adequate space to stay in business delivery to delivery. Every store can be different in the sales pattern and space allocated to an specific item.
3. Systematically check your shelves twice a day, once in the morning, even after the stock crew has finished their work, and a second time in the mid evening, or in the middle point of whenever your business is peaking for that day. For sale items and other fast moving items, additional checks may be needed.
4. Develop a working knowledge of why certain items are chronically out of stock and insure through addition back stock or an outside display that there is plenty in reserve if the shelf capacity is a limiting factor.
5. Track your progress and sales on the items that are being monitored. There is no proof of concept like seeing sales growth among items that have been chronically inclined to be missing in action attributed to the new attention they are receiving.
Building upon Mr. Simon’s comments, I see out-of-stocks are a “shelf-inflicted wound. Check your shelves daily, develop a system that works for you, and don’t settle for average when it comes to something that you can control.