Tuesday, August 11, 2015

Category Management: Dealing with Out of Stocks

Out of stocks is for sure a key issue for retailers. Indeed, studies show that products that are out of stocks tend not to be replaced by another product, which leads to lost sales.

In France, LSA has reported that in 2014, 1,4 billion € have been lost due to out of stocks items. This is a key issue in the near future, as sales growth targets will get harder to achieve in mature markets like France or the US.

Now here are some keys to think about while fighting against Out of stocks:
  • Limiting product range, in order to ease the operations and secure full access at all time
  • Having a better supply chain, allowing better leadtime to be more responsive while stock is shorten.
  • Working on shelf capacity: having enough capacity on shelves to respond to the demand, and not being out of stocks on your busiest day.
  • Having a better cooperation between retailers and suppliers on the ordering process: the out of stock could be caused either by the supplier (not delivering) or the retailer (not ordering enough). A better sharing of information could ease the suppliers' production & retailers order.
The threat behind out of stocks is obviously breakings which could be costly for retailers, but also cost of inventory, as most of the time it is the skus with lower rotations that tend ironicaly to be out of stock sooner. 

In the article ECR is alerting the retail actors about the issue. ECR is willing to work with all retailers and suppliers in order to find out a specific method which could be adopted by all to fight against this issue. This is actually to me a category management issue, as it is costing sales, and you could develop the best product range with the best store concept, if you are falling out of stock on key items, you would lose sales and customer satisfaction.
A white paper is expected to express the findings of ECR.