HOW MUCH DOES OOS REALLY COST?
Fact is, sales data mask out-of-stocks. Typically, 30% of purchases are substitutes for what the shopper originally had in mind; this means that, even if their actual sales data is 100% accurate, retailers and manufacturers never have a truly accurate picture of the true pattern of demand. In order to understand true customer demand, and to satisfy it by preventing out-of-stocks, it is necessary to monitor on-shelf availability (OSA). But while supply chain management (SCM) systems have successfully automated goods supply, goods demand (i.e., on-shelf availability) is still monitored manually by store operators.
This operation has a cost that grows in proportion to the number of products monitored and the frequency of monitoring, and it can only happen intermittently. This is also true for all approaches based on sales data collection and analysis.
In-store replenishment is, after cost of goods sold, the largest retail operational cost and it is a completely unmeasured - and hence, unmanaged - activity. This is because retailers do not have any means to split inventory between storeroom and shelf, and hence of measuring the efficiency of transporting goods from the first to the second. But even such separation would not be enough without the means of maintaining both on-shelf and stockroom availability constantly updated, and of recognizing the need for a replenishment and measuring the time between such recognition and replenishment occurrence. It should be possible to adopt a unified approach for all products in store.
A proper SCM system should satisfy all these requirements. Stockroom inventory and shelf inventory should be separated and product availability for both updated in real time. When shelf availability goes below a given low watermark, an operator is sent a picking order and a ‘pending replenishment’ operation is created. This operation will be closed when a replenishment event, captured with touch screens, barcode scanners, RFID, etc., will occur. The time elapsed between picking order reception and replenishment is calculated, allowing the measurement of operational performance.
This approach should be able to be applied without any increase in costs to all products in-store, whether fast or slow moving - replenishment will always be driven by actual, real time demand. Sales velocity is instantly calculated and staff are sent picking orders/picking lists when products sell so fast that they risk going out of stock, or when their availability goes below a given threshold. In-store picking and supplier/DC re-ordering are triggered based on real time shelf and store availability. Availability and sales trend data for all products are then instantly accessible to all players in the supply network.
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