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On-shelf availability remains a significant challenge for retailers. Despite the focus on supply chain and inventory management initiatives, improvements still elude most retailers:
1. Non-promoted, out-of-stock (OOS) rates between 6% and 10%, and 18% to 24% of promoted items unavailable to consumers
2. 70% of surveyed shoppers would shop for an item at a competitor or online if it was unavailable (Source: Information Resources, Inc.)
3. Up to 4% of sales lost because of OOS items, which is an earnings-per-share (EPS) hit of $0.012 (Source: GMS, FMI, CIES study)
4. 98% of respondents to a 2007 AMR Research survey of 62 fast-moving consumer goods (FMCG) retailers have mechanisms in place to track out of stocks, but few turn this information into tactical actions.
While retailers aspire to improve their on-shelf availability levels, it's often capabilities, or lack thereof, that limit making significant improvements. Today's retailers can utilize technology advancements in forecasting, replenishment, and optimization like never before. However, although technology alternatives are available, business processes remain disconnected and functionally focused.
Successful retailers are making a fundamental shift in the way they do business by implementing a demand-driven model that coordinates processes and technology to help them understand, shape, and respond more efficiently to consumer demand. However, many organizations continue to struggle with coordinating key promotion, pricing, and inventory strategies, hindering their abilities to accurately sense, forecast, and assort for consumer demand. One major barrier is that planning activities within the home office are often disjointed by functional and siloed processes. This also has a negative downstream effect on store execution.
AMR Research has identified four practices used by retailers to align merchandise planning and store-level execution processes that reduce OOS duration and improve customer satisfaction:
1. Create an organization that oversees marketing, merchandising, and space management responsibilities.
2. Determine and define the role of store operations in the planning and execution processes. Typically delegated to execution, some retailers involve the stores in the assortment selection process because they have insights into local items requested by the consumer.
3. Conduct a thorough review of the new and discontinued item process, which can represent up to 20% of retailer out of stocks.
4. Embrace workforce and task management and share labor availability to downstream activities, such as receiving and stocking. Establish engineered work standards to determine duration of time for specific activities. Visibility allows organizations to coordinate the available labor resources with the demand from delivery and stocking tasks. This coordination leads to efficient product movement, available labor to replenish the shelves, and uncongested backrooms.
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