Answer: all of them. That 100% availability ideal is costly and unproductive, says Siân Harrington
Retailers have placed availability firmly at top of the agenda in the past 12 months, with a raft of initiatives aimed at improving both back-of-house and in-store performance in this area. In the wake of Sir Terry Leahy’s claims at Tesco’s annual results that its 95% on-shelf availability was one of the reasons it was a better place to shop compared with a year ago, it was also a hot topic at the ECR Europe Conference in Paris two weeks ago. Christian Polge, VP sales and marketing Coca-Cola Enterprises, said: “We want 100% stock on shelves, but it is out of our hands. We could get improvements at a much quicker pace if someone appointed an out-of-stocks specialist.”
But are retailers wasting their time striving for 95%-plus availability across the board? Would they be better off opting for 80% availability in some categories? Andy Bell, European availability manager at Kurt Salmon Associates (KSA), certainly thinks so.
“If there is a 95% availability edict from the CEO, then merchandisers compensate by sending out far too much inventory. Store backrooms are filled with loads of stuff, store staff can’t find it, more inventory is pumped out to compensate and availability goes down,” he says, adding: “You could have £50m inventory and poor availability.”
PA Consulting’s Alastair Charatan agrees. “Retailers have to set availability targets under 100%, because to guarantee 100% availability would have a huge cost. You would have to allow for the most extreme peaks of demand occurring at any time, as well as carry safety stock to cover any operational or supply problem.”
The key, believes Bell, is to set differentiated targets by category in line with business model objectives. To do so, a retailer has first to identify what the purpose of a product is in its portfolio. Is it a destination product for which the shopper specifically visits their store - for example, a can of beans, eggs or milk? If so, the target should be never-off-shelf, or 95%-plus availability.
However, an opportunistic product, perhaps a grey market non-food item such as a DVD player, is what KSA terms a WIGIG - when it’s gone, it’s gone - and in this case the availability target could be 80% or less.
“In Asda, if you did not have above 95% availability in large boxes of detergent, you would lose the customer. But in Sainsbury, a DVD player on the gondola end has a short-term life cycle and therefore can have a lower availability target,” says Bell.
Of course, it is vital to look at a supermarket’s strategic plans going forward. Take clothing. A Cherokee or George white kids T-shirt is a staple product and should be never off shelf. However, a seasonal item, say this year’s fashionable gypsy skirt, has a medium or low shelf life. As such, when it is introduced the retailer will require 100% availability, but as time goes on it requires only 80-90%. But if clothing is an area of differentiation or future growth, the retailer may decide it is best to drive for higher availability.
Setting targets requires balancing the cost of achieving the target against the additional sales revenue achieved by higher availability. But neither the costs nor the sales revenue are easy to estimate accurately, says Charatan.
“If a product is missing, customers may often buy an equivalent alternative and not feel particularly inconvenienced. Hence, striving for 99% availability might be unjustified. But if basic commodity products are out of stock, there is a risk of losing customers. As Sainsbury showed before Christmas, if availability falls below a certain threshold, customers may stop shopping altogether, and the lost sales can represent many months or even years of spend per customer.”
Bell stresses that availability targets must be in line with customer expectations. “If the product is ultra-seasonal, customers do not expect to see it there every week,” he says. “For example, when a new DVD movie is advertised, they would expect to see it in stock there and then, but 15 weeks later the expectation has disappeared. Customers do not expect to see movie titles all year round in a supermarket, as opposed to somewhere like HMV, whose selling point is its back catalogue.”
Once you have set targets, you need to achieve them. KSA has produced a grid to help retailers do so. This is based on three key areas: inventory efficiency, for example forecasting, replenishment and merchandise planning; product flow, such as distribution centre operations and store operations; and supplier management, such as sourcing, partnership and collaboration. Retailers need a threshold competence on all three drivers, says Bell, but should strive for excellence in one, depending on their availability targets.
So if 70% of a grocery retailer’s profits come from never-off-shelf products, that retailer needs to be brilliant at inventory efficiency. But if promotional and WIGIG products are the differentiator, then the retailer needs to major on product flow - getting the product in, through the DC and out again as quickly as possible.
“You cannot ignore the other drivers, but in this case the retailer needs a slick process, with a simple DC operation and efficient back-of-store process. But it does not need to go overboard on mega powerful forecasting tools, for example,” says Bell.
If the key products to your business are margin-enhancing or footfall-enhancing, for example fashion, then you need brilliant collaboration with suppliers. “Such retailers need to be good at partnership building - to be tied at the hip to important suppliers,” says Bell.
Shoppers are unforgiving when it comes to out of stocks. But getting 100% on-shelf availability is nigh impossible if grocery retailers want to run a profitable operation. It may be radical, but perhaps the time has come to stop aspiring to the unattainable.
n For more supply chain-related stories, see the Supply IT supplement, free with this week’s issue.
Retailers have placed availability firmly at top of the agenda in the past 12 months, with a raft of initiatives aimed at improving both back-of-house and in-store performance in this area. In the wake of Sir Terry Leahy’s claims at Tesco’s annual results that its 95% on-shelf availability was one of the reasons it was a better place to shop compared with a year ago, it was also a hot topic at the ECR Europe Conference in Paris two weeks ago. Christian Polge, VP sales and marketing Coca-Cola Enterprises, said: “We want 100% stock on shelves, but it is out of our hands. We could get improvements at a much quicker pace if someone appointed an out-of-stocks specialist.”
But are retailers wasting their time striving for 95%-plus availability across the board? Would they be better off opting for 80% availability in some categories? Andy Bell, European availability manager at Kurt Salmon Associates (KSA), certainly thinks so.
“If there is a 95% availability edict from the CEO, then merchandisers compensate by sending out far too much inventory. Store backrooms are filled with loads of stuff, store staff can’t find it, more inventory is pumped out to compensate and availability goes down,” he says, adding: “You could have £50m inventory and poor availability.”
PA Consulting’s Alastair Charatan agrees. “Retailers have to set availability targets under 100%, because to guarantee 100% availability would have a huge cost. You would have to allow for the most extreme peaks of demand occurring at any time, as well as carry safety stock to cover any operational or supply problem.”
The key, believes Bell, is to set differentiated targets by category in line with business model objectives. To do so, a retailer has first to identify what the purpose of a product is in its portfolio. Is it a destination product for which the shopper specifically visits their store - for example, a can of beans, eggs or milk? If so, the target should be never-off-shelf, or 95%-plus availability.
However, an opportunistic product, perhaps a grey market non-food item such as a DVD player, is what KSA terms a WIGIG - when it’s gone, it’s gone - and in this case the availability target could be 80% or less.
“In Asda, if you did not have above 95% availability in large boxes of detergent, you would lose the customer. But in Sainsbury, a DVD player on the gondola end has a short-term life cycle and therefore can have a lower availability target,” says Bell.
Of course, it is vital to look at a supermarket’s strategic plans going forward. Take clothing. A Cherokee or George white kids T-shirt is a staple product and should be never off shelf. However, a seasonal item, say this year’s fashionable gypsy skirt, has a medium or low shelf life. As such, when it is introduced the retailer will require 100% availability, but as time goes on it requires only 80-90%. But if clothing is an area of differentiation or future growth, the retailer may decide it is best to drive for higher availability.
Setting targets requires balancing the cost of achieving the target against the additional sales revenue achieved by higher availability. But neither the costs nor the sales revenue are easy to estimate accurately, says Charatan.
“If a product is missing, customers may often buy an equivalent alternative and not feel particularly inconvenienced. Hence, striving for 99% availability might be unjustified. But if basic commodity products are out of stock, there is a risk of losing customers. As Sainsbury showed before Christmas, if availability falls below a certain threshold, customers may stop shopping altogether, and the lost sales can represent many months or even years of spend per customer.”
Bell stresses that availability targets must be in line with customer expectations. “If the product is ultra-seasonal, customers do not expect to see it there every week,” he says. “For example, when a new DVD movie is advertised, they would expect to see it in stock there and then, but 15 weeks later the expectation has disappeared. Customers do not expect to see movie titles all year round in a supermarket, as opposed to somewhere like HMV, whose selling point is its back catalogue.”
Once you have set targets, you need to achieve them. KSA has produced a grid to help retailers do so. This is based on three key areas: inventory efficiency, for example forecasting, replenishment and merchandise planning; product flow, such as distribution centre operations and store operations; and supplier management, such as sourcing, partnership and collaboration. Retailers need a threshold competence on all three drivers, says Bell, but should strive for excellence in one, depending on their availability targets.
So if 70% of a grocery retailer’s profits come from never-off-shelf products, that retailer needs to be brilliant at inventory efficiency. But if promotional and WIGIG products are the differentiator, then the retailer needs to major on product flow - getting the product in, through the DC and out again as quickly as possible.
“You cannot ignore the other drivers, but in this case the retailer needs a slick process, with a simple DC operation and efficient back-of-store process. But it does not need to go overboard on mega powerful forecasting tools, for example,” says Bell.
If the key products to your business are margin-enhancing or footfall-enhancing, for example fashion, then you need brilliant collaboration with suppliers. “Such retailers need to be good at partnership building - to be tied at the hip to important suppliers,” says Bell.
Shoppers are unforgiving when it comes to out of stocks. But getting 100% on-shelf availability is nigh impossible if grocery retailers want to run a profitable operation. It may be radical, but perhaps the time has come to stop aspiring to the unattainable.
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