On-Shelf Availability in Retail: a Detractor of Customer Experience
With the whole world just a click away, be it products, services or information, consumers are now less tolerant towards not having what they want at the right time in the desired quantity and in optimal condition. With widespread access to the internet, consumers under 25 have never encountered information they could not obtain instantly or a product they could not find. This digital native generation is the first to embrace the on-demand culture:
- Available when the customer asks or wants something
- Available to be accessed at any moment
As the on-demand mindset is adopted by the remaining generations, society is heading towards the widespread ‘cult of immediacy’. What the customer is looking for must be available immediately, across different channels. This trend also extends to brand communication. If previously it was acceptable for communication with a brand to be time-consuming, today the consumer expects a quick response via social media or chatbots.
The need for immediate fulfilment has arisen in several customer journeys. In a recent UK research study, 61% of respondents are unwilling to wait more than 45mins for a meal to be delivered; 1 in 5 respondents are only willing to wait up to 10mins for a taxi booked using an app. Google search patterns also confirm this trend with the number of searches for 'open now' tripling in the last two years compared to searches for 'opening hours'. This reveals a subtle but impactful paradigm shift for retailers to analyse and adapt.
The cost of the unavailable
Despite the efforts of producers and retailers, the immediate availability of items in any channel remains a major challenge. Currently, the out-of-stock rates are around 8%, reaching 10% for products on sale. This means that when a customer visits a shop, whether physical or virtual, 1 in 13 items are not available. What happens if the product the consumer is looking for is not available at the desired time? Ideally, if the desired product is missing, the consumer would opt for a substitute or a similar product, and the loss to the retailer would be marginal. However, this is not the case.
An international study carried out by Emory University, with more than 70,000 consumers surveyed, revealed that less than half would buy a substitute product. A third of consumers surveyed would choose another retailer if the product was not available. In a more detailed analysis of consumer reactions to stock-outs, it is understood that the repeated occurrence has an even more negative impact on the consumer. When it first happens, 69% of consumers buy a substitute product and 31% buy from another retailer or not at all. In the third occurrence the figures are reversed, with 30% of consumers buying the substitute product and 70% buying from another retailer or not buying at all.
Given these figures, the loss for the retailer becomes significant, and it is estimated that it could reach sales losses of up to 4%. The good news is that 72% of out-of-stocks are caused by failures in retailers' processes, such as ordering and replenishing stock in the wrong quantity or at the wrong time, following inaccurate forecasts or by poor warehouse management. This is good as it is mostly an internal problem that is within the retailers' control to solve.
The retailers' adaptation and why increasing stocks is not the answer
The leader’s natural first reaction to ensure product on-shelf availability is to increase stock levels, as more stock = less out-of-stock. Unfortunately, this equation is not as simple as it appears. Increasing stock does not solve shelf shortages; in fact, it increases the complexity of logistics operations in the back of the store, thus diverting the teams’ time away from the customers and the shelves. Additionally, excessive stock values lead to an increase in shrinkage and make it difficult to find items in the shop warehouse.
To ensure product on-shelf availability at the right time, quantity and condition, regardless of the purchase channel, retailers should:
- Dimension and replenish stocks based on actual product consumption
The creation of a Lean value chain, with fast and frequent ordering and delivery processes, allows the store teams to work on a stock replenishment model based on the actual consumption of the articles and not solely on forecasts. In addition, consumption forecasts can be improved by using information and knowledge from local teams, who can anticipate events with a significant impact on sales. Year-on-year periods are not enough to predict demand in an era where consumer habits and preferences are changing at high speed. Ensuring product availability is also about prioritisation, and the approach to stock management can and should be distinct for high, medium and low turnover products.
- For products produced in-store, use semi-finished products
Dealing with demand variability can be done through safety stocks or, in the case of products produced or finished in-store, by taking advantage of semi-finished products. From producing bread in a supermarket to personalising a garment in a shop, sizing stocks of semi-finished products can put an end to stock-outs. The concept is simple: planned production ensures consumption for the expected demand, while semi-finished stock contributes in case of over demand. This guarantees product on-shelf availability to the customer, avoiding the waste caused by overproduction. In this way, the teams react in real time to customer consumption at the point of sale.
- Anticipate out-of-stock products: guarantee on-shelf availability
The implementation of preventive processes for the replenishment of articles on the shelf is crucial for the reduction of stock-outs. These processes must guarantee a flow of information and articles that make it possible to anticipate stock-outs, with minimum impact on the customer's experience in-store. Replenishment should be cyclical and planned, according to the influx and consumption patterns of each shop. The implementation of these replenishment routes includes the definition of stop points, the selection of tools for picking needs, the dimensioning of the necessary transportation means and the training of employees. Additionally, the reorganisation of the back of the store as well as improvements in the product reception processes can have a significant impact on replenishment flows.
- Planning teams' work and encouraging versatility
The work planning of the teams is crucial, not only to minimise out-of-stock situations, but also to guarantee the best service and availability for the customer. Planning begins with sizing the required capacity. The different retail sectors and the various shop locations have different demand profiles, which implies a different dimensioning of the necessary resources. So, the first step is to study the demand profiles and adjust the workforce accordingly. Once the teams have been defined, getting the day off to a good start should include setting priorities, allocating tasks, and sharing relevant data and information. If the operational mode for each process is standardised and the different elements are properly trained, the team will have greater flexibility, which will enable them to adjust in an agile way during the working day, in case of discrepancies against what was planned.
The Future of Retail
The growth of the cult of immediacy in consumers is shaping the future of retail. Retailers are looking for solutions to deliver maximum consumer convenience and meet on-demand omnichannel requirements. To achieve this, retailers must adapt their in-store operations, supply chains, and team organisation with a focus on Lean and customer-centric solutions.
The optimal product availability will only be achieved by working on the supply chain as a whole. Starting from the point of contact with the customer is crucial, but going back through the whole chain is mandatory to guarantee sustained long-term solution design.
Companies like Amazon, Uber or Netflix have raised customer expectations in terms of convenience and speed. Retailers who can follow these trends by shaping their operations and culture, and by creating elastic operations will stand out and win consumer preference.
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