When CPGs look at their supply-chain they can take some comfort in relatively high fill-rates to their retail customers, often shipping 98%-99% of everything that has been ordered by a retailer DC. Similarly, retailers’ DCs generally have very high service levels supplying store orders. Indeed, often stores will report that they have enough inventory to meet short term demand on a daily basis for over 99% of their products.
It all sounds like a well-oiled machine. So why is it that the chances of finding the product you want on shelf are only about 92%? It can’t be down to issues with product supply to the store.
This post is the second in a series on On-Shelf Availability
For sure, there are exceptional supply problems that are big enough to eliminate the inventory buffers at the DCs and stores leaving empty shelves but these are few and far between. Most of the problem is with retail operations within the store and you won’t fix it by pushing your supplier service level from 99% to 99.2% or increasing your on-time arrival rates by a few points.
So what really causes off-shelf events?
Missing shelf tags. The shelf tag is the small label attached to the shelf that tells you the price of a product. It also defines where on the shelf that product should go and in some cases how many facings (spaces) on the shelf it should take up. I’m sure there are other reasons that these tags go missing, but I can tell you from personal experience that curious young children pick them off the shelf for fun. (Sorry about that, they seem to have grown out of it now). Regardless of the cause, once the shelf-tag is missing there is no longer a visual cue to the associate re-stocking the shelf that something should be there and when the product on shelf has been depleted, it could stay that way.
Slide and hide. Gaps on the shelf look unsightly: they look as though you are not managing your shelf correctly. If you really can’t find the product, what harm does it do to take a little of the product from the next facing and slide it across to hide the gap? Looks better doesn’t it? Perhaps it does but now when that product is found and you go to replenish the shelf there is no visual clue that it needs replenishing and no gap to put it in without additional work.
Over-replenishment. An associate has 12 new cans of product to add to the shelf but the facing only has room for 8…what to do? The additional 4 should be taken back into back-room storage and logged back into storage, but wouldn’t it just be easier to overflow into the next facing? It’s slide and hide with a new
Hidden/unsaleable product. There are many ways to make physical inventory unavailable to the customer. Here are a few examples:
- Baby food at the back of a 6’ high shelf is not available for sale to most of the shoppers. Tinned cat-food at the back of warehouse style shelving, over 40” deep, is visible but unavailable to anyone without a means to get it out. (Both of these are real-life examples).
- Product that is physically on the shelf, even in the right slot but with a layer of other product in front of it is, effectively, not there.
- Product physically on the shelf but not even close to where it’s supposed to be is unsaleable. (You can probably thank a customer for moving it)
- Product that is damaged or beyond it’s sell-by date is effectively unsaleable whether it’s visible and reachable or not.
Phantom inventory. Phantom Inventory is inventory that exists in the system but not in reality: essentially, inventory that has gone missing, which is inventory that cannot be re-used to replenish the shelf. Furthermore, because it exists in the system, it prevents (or delays) ordering of new product, causing further shortages on shelf. How did it go missing?
- Perhaps you never received it in the first place. Errors on receipt could mean your system thinks you have 2 cases of apple sauce, not the one you actually brought in at the dock.
- Lost inventory. With over 50,000 products in the average grocery store, and well over 100,000 in a super-center it’s perhaps not too surprising that they lose something every so often. Keeping strict process discipline across a large and rapidly turning workforce must be hard enough, but as they also allow customers like you and me to come into the store and interact directly with the merchandise it’s a miracle more things do not get lost.
- Shrink. Some customers, sadly, interact with the merchandise in less honest ways than others.
- Scanning errors. The classic example here is buying single-serve yogurt. You have selected half a dozen flavors of yogurt, same brand, same size, and when you come to check out, the associate scans one, tells the system there are 6 total and bags them. I still see this on a regular basis.
Peak vs average demand. Planograms are typically designed around average demand, but some products (categories) even have more wild fluctuations from the average than others. If the peaks are exceptionally high, regular demand can empty a shelf on peak days quickly enough that the shelf replenishment process cannot keep up.
Replenish to back-room. Ideally, when new product arrives at the store, it is moved directly to the shelf. This is cost-effective from a labor standpoint, but there is also some evidence to suggest that products which can be replenished directly to the shelf have better on-shelf availability. Where the replenishment quantity is too big to fit in the shelf space available it must be stored in the backroom with extra labor, an increased chances of loss and shelf replenishment problems.
Predicting off-shelf before it happens
Having reviewed many of the causes of off-shelf events here let’s think about whether we can predict an off-shelf event before it happens. Clients often ask for this and some marketing materials claim to offer it, but really? How can you predict a specific theft, the loss of a shelf-tag, a store associate (or customer) blocking a replenishment spot, the misplacement and subsequent loss of product in the back room?
When you think of the causes of off-shelf events, in most cases, the event itself is not predictable. (Except in the obvious situation that you are off-shelf because you have absolutely no inventory either in reality or due to an unresolved phantom inventory problem)
Predicting a propensity (likelihood) to being off-shelf is doable, and there coudl be real value in doing so. more on this later. Predicting the actual event, not so much.
The bottom line
If most of the problem here is in store operations, you may be thinking that there is nothing a CPG supplier can do to fix it.. I don't think that's the case and certainly it's not the message I am trying to get across. My point is that you can't fix it by being ever better at upstream supply chain - you need to start thinking about how you can improve store execution.