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Are out-of-stocks out of mind in U.S. supermarkets? It would certainly appear that way at some stores, where the new item that went on promotion at the beginning of the week is now nowhere to be found — or across town, where Mom always goes to get 100 percent juice in her daughter’s favorite favor, but hasn’t been able to find for two weeks now.
The harsh reality is that the out-of-stock rate in supermarkets remains at a stubborn 8 percent on average, with out-of-stocks for promoted items often exceeding 10 percent, according to an eye-opening report, “Solving the Out-of-Stock Problem,” released earlier this year by the Food Marketing Institute/Grocery Manufacturers Association Trading Partner Alliance.
“That out-of-stock rate represents potential revenue loss of 8 percent to 10 percent — or more — in an industry already challenged with rising costs to the consumer,” explains Daniel Triot, senior director of the Trading Partner Alliance. “And while other retail channels are still trying to drive more trips, the grocery channel has them. Hence, it’s critical to close the sale while the shopper is in our stores.”
Perhaps more troubling than lost revenue is that shoppers consider product availability a top-three reason for where they shop. In fact, data from the Trading Partner Alliance show that shoppers will eventually go to another store if they keep encountering out-of-stocks.
The good news is that the picture isn’t quite as grim as it seems. That’s in part because the alliance has been busy working behind the scenes with retailers and manufacturers to delve deeper into the issue, and is now crafting solutions and achievable goals to help remedy the problem.
In fact, the alliance is currently designing the framework of its third phase, as well as “prioritizing both the biggest and fastest wins,” to formulate and execute a five-year plan to bring on-shelf availability (OSA) to a covetable 98 percent, according to Triot. The five-year plan will include case studies from proof-of-concept pilots, as well as a communication plan to the industry maximize adoption.
There’s more good news: FMI and GMA aren’t the only industry players that recognize the need to grab the out-of-stocks issue by the horns. Technology providers, for their part, are eagerly looking for retailer partners to test new solutions and work with systems that are already in place, to improve forecasting and ultimately achieve a higher level of supply chain visibility (see the sidebar on page 192 for more information).
Meanwhile, GS1 US, the Lawrenceville, N.J.-based group that manages the GS1 system of standards for product codes in the United States, is working with the grocery industry to address how standards can better support OSA goals. The organization has formed the GS1 US Retail Grocery Initiative, whose members include FMI, GMA, the Produce Marketing Association, numerous manufacturers, and retailers/wholesalers such as Brookshire Grocery Co., H.E. Butt Grocery Co., Costco Wholesale, The Kroger Co., Publix Super Markets, Supervalu Inc., Wakefern Food Corp. and Wegmans Food Markets.
Speaking the Same Language
In GS1 US’ view, standards provide a common language of business, leading to better supply chain visibility. “The industry is saying that in order to tackle on-shelf availability, we need supply chain visibility,” says Angela Fernandez, VP of grocery retail and foodservice at GS1 US. “Full visibility not only speaks to OSA, but also allows the industry to address consumer concerns such as food safety and sustainability.”
Yet the process of achieving higher OSA isn’t a race, and these changes surely won’t happen in just one year, Fernandez and others advise.
“This is a journey, not a race,” notes Fernandez. “Getting to full supply chain visibility requires a lot of working parts — for instance, tying the distribution center to the store, looking at what’s happening with enterprise resource planning, and working with manufacturers who do direct-store delivery.”
GS1 US is focusing on collaborating with the many parties involved in the grocery industry to make changes that benefit everyone. “The only way we can reach full supply chain visibility for the industry is to have all stakeholders engaged,” she says. “There are different levels of response and recognition that supply chain visibility is essential. While this may take a number of years, the hope is that eventually it will become the way we do business.”
For now, the Trading Partner Alliance has zeroed in on several areas that companies can focus on in their respective OSA journeys. Its report highlights such areas as metrics/data, processes/practice, organizational issues and technology integration — all of which contain gaps between current practices and desired performance.
In terms of metrics, the industry is currently lacking a standard definition of OSA. “Moving the industry toward a ‘zero on hand’ baseline definition of on-shelf availability could facilitate a minimum common definition to enable better communication and standardization for data exchange, and would certainly be a great start in the ‘one supply chain’ journey,” says Triot.
Zero on hand essentially calculates the number of instances when an authorized item’s perpetual inventory falls to zero or below, divided by totalstore item combinations.
Looking at processes and practices, one area of concern is the poor synchronization between retailers and manufacturers on event planning. The Trading Partner Alliance report finds that while 58 percent of retailers say they lock down event plans four weeks or less before the event, 73 percent of manufacturers would like at least five weeks to adjust their production to accommodate these plans.
“While we realize it can sometimes be challenging for a retailer to communicate these plans early enough, or even accurately enough, to meet a manufacturer’s needs, only close collaboration between trading partners will enhance consumer satisfaction,” says Triot, adding that his team will be addressing the concept of joint high- and low-side contingency planning in its third phase.
In regard to organizational issues, as it stands, there’s no clear owner of inventory among retailers, the alliance’s report notes. An equal number of retail respondents named supply chain planning departments, category managers, buyers and even merchandising as the owners.
Striving to be ‘Best’
The Trading Partner Alliance first began researching the out-of-stock problem in 2013 and presented a “good-better-best” maturity model for improving OSA at the 2014 FMI/GMA Supply Chain Conference. Its new report includes an updated good-better-best model for how trading partners can transition to a collaborative OSA approach.
Pat Walsh, chief business development officer and VP of supply chain at Arlington, Va.-based FMI, notes that while performance levels can vary greatly from company to company, “the willingness to address the issue has certainly become a higher priority for most trading partners in this discerning consumer world.
“We wanted to provide a framework where everyone can continue to improve,” he adds by way of explanation.
There are a few supermarket companies that are already miles ahead on their OSA journeys, moving toward the “best” level in the Trading Partner Alliance’s good-better-best approach.
Cincinnati-based Kroger, for instance, is further along than many in its supply chain visibility capabilities, with dynamic information about products now readily available to cashiers at the point of sale.
Yet all players, no matter how small or large, have an important role to play in helping the industry solve the out-of-stock issue once and for all.
“Full visibility not only speaks to OSA, but also allows the industry to address consumer concerns such as food safety and sustainability.”
—Angela Fernandez, GS1 US