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On-Shelf Availability - A 1 per cent improvement could boost sales by 0.5 per cent,
Archived article dated Thursday July 24th 2008
Why is product availability still poor in so many retail organisations, when as little as a 1% improvement could boost sales by 0.5%, well worth having in these difficult times?
By Ged Keogh-Peters
One common misconception is that to do better would require more product.
However, our research indicates that poor availability is rarely due to an actual shortage of stock - on the contrary, most availability improvement programmes that actually deliver results on-shelf also deliver a reduction in stock holdings.
Typically, on a snapshot basis we find that a simple re-distribution of the existing stock could lead to a 10% -15% improvement in availability. This does not imply that more stock is the solution, but that it needs to be in the right place which can be achieved with correct allocation and management.
Assuming that catastrophic supply failure is not impacting results, the two areas that have more influence than all the rest put together when it comes to determining why stock in the business is not available when customers want to buy it, are:
• In-store replenishment: It is not unusual to find that availability could be improved by 5% -10%, just by ensuring that product that is in the store is actually available on-shelf; and
• Stock File Accuracy: With stock files commonly only 70% accurate, no automated replenishment system can hope to deliver the right goods to the store are the right time. Given that the files are only corrected once a year, ongoing maintenance of accuracy should form the heart of activities aimed at providing great service. Projects around delivery frequency, pack size, shelf space and supply flexibility are all of only very limited benefit if the results depend on such poor information.
So, what can be done to improve the situation?
In the store, stock management performance is generally based on a range of factors. Store layout (how easy it is to see what is on shelf and what is missing, and then how easy it is to see if it is available in the stock room) is one significant theme, as is the allocation of staff hours. Incredibly, only around 50% of retailers in the UK actually have a store staff hours model, enabling them to base the time required in stores on a scientific calculation rather than a combination of custom and practice and gut instinct.
Given that store staff are directly responsible for the achievement of standards and results in so many ways, this seems a risky way to operate. From an availability perspective, understanding what needs to be done in store by way of shelf replenishment, how long this will take, and (crucially) when it should be done to maximise customer satisfaction is at the heart of successful retail operations. Store staff need the time to ensure that product is always displayed at its best, and they also need time to serve customers. Building a model which supports this by ensuring that enough hours are available at the right times is an essential discipline if the balance between results and costs is to be maintained.
Having the right staffing levels can also contribute very significantly to stock file accuracy. Yes, regular counting and correction can improve matters, but is unsustainable over extended periods of time for all but the smallest operations. Correct receipt processing, correct transactions through the till and correct processing of returns are more efficient strategies, as is training. Do your staff actually understand the part played by the stock file in ensuring they have the right products to sell? Most (good) sales staff really want to provide a high quality service to customers, so if they understand the impact that errors made in processing goods through the various stages in the system have on supply chain performance they are likely to take greater care.
Once these basics are in place, how to achieve high availability shifts towards the balance between supply and demand. How volatile is the sales pattern? How good are you at forecasting it? How quickly can your supply chain respond?
Products that exhibit different sales characteristics, and at different stages in the product lifecycle, require different approaches to replenishment, but too many organisations try to operate with a “one size fits all” model. High cube lines with a relatively low rate of sale may do well on a sell-and-replace strategy (given a suitable safety stock) while seasonal items with volatile supply as well as demand may be more suited to an allocation (push) approach. Over complicating the management of the flow of goods is unhelpful, but simply treating all alike will invariably result in sub-optimal performance.
High availability, like many other aspects of retail, is about getting things right at the detailed level and then applying consistent, disciplined practices to maintain results. It is not rocket science, but it does require co-operation between functional areas, and it does require a certain level of willingness to get into the detail. What it generally does not require is more stock!
Ged Keogh-Peters is Head of the UK strategy team at Kurt Salmon Associates
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