2 Tips To Avoid Out-Of-Stocks, One Surefire Way To Deal With Them

By Matt Pillar, Editor In Chief, Retail Solutions Online/Integrated Solutions For Retailers magazine

What a dilemma. Cash-conscious consumers will require a lot of coddling via promotions this season, while cash-strapped retailers are unable or unwilling to jack up their safety stocks (unable due to cash flow, or unwilling because nobody wants to get killed on markdowns this quarter and next). It's the recipe for an out-of-stock disaster, but it's a disaster that can be avoided with a little finesse.

Late last week I had a conversation with Jim Bengier about the issue. Bengier is Global Retail Industry Exec for Sterling Commerce, and he formerly held top-dog supply chain positions with BestBuy.com, Tweeter, and Stage Stores. We talked about two approaches retailers should take to avoid out-of-stocks, and, because they are inevitable, one new way Sterling Commerce is empowering retailers to deal with them.

1.) Plan Your Way To Inventory Availability

Planning is an exercise that ensures nothing, but is necessary nonetheless. For retailers in this economy, this tough reality is especially true. Bengier says that most of the planning systems he sees are traditional in their top-down nature, starting with revenue goals, converting that to units, applying some forecasting and analytics based on past history or current trends, pushing that forecast down to DC-level, and on to the store. "This approach introduces numerous areas for errors," says Bengier, "especially for an industry in such a state of flux. Looking at a combination of current trends and history, for instance, is very susceptible to error." Consumer demand, the dramatically changing competitive landscape, and even changes to your own store locations and formats all challenge the notion that last year's analytics are at all meaningful this year.

Bengier says these challenges are why more retailers have subscribed to a ‘test and deploy' methodology to determine stock levels. "Rather than focusing solely on the plan, retailers are testing products, getting an early read on their performance, and then ordering and pushing more of that inventory out, canceling it, or otherwise making adjustments to the order." This takes finesse, though for cross-channel retailers, the Web is a powerful tool for testing the potential of specific merchandise. Promotions overhead is lower, and consumer-direct fulfillment take cost and complexity out of the demand chain.

Without question, variability begets risk, and variability is something that's decidedly in stock these days. With mistakes to the plan inevitable, how do you mitigate stock-positioning risk?

2.) Focus On Execution.

To the point that planning is necessary but imperfect, even the best retailers accept that they're only in-stock 92% of the time. Worse, that success dips to 85% during heavy promotion periods. Bengier points to poor supply chain visibility as the culprit, and he says that building flexibility into the previously-discussed planning process and a focus on supply chain execution results in a retailers best two-point approach to avoiding out of stocks. "I'll say a full 90% of the store-level retail associates I spend time with cannot see what's in the DC. They do have visibility into what's in other stores, but they probably don't have visibility into what's due in," he says. "We're exploiting this, because we believe that you can utilize DCs better by not pushing inventory to stores as dramatically in anticipation of demand, but rather reserve a little more in the DC and fill orders out of the DC as a centralized location," he says.

This marks a fundamental shift in the traditional replenishment model, and it's a shift that's both a fix for the beguiled planner and enabled by cross-channel momentum. "It used to be that, going into a holiday, a retailer might reserve 10% of its inventory in back stock to replenish its best stores. Now, I'm seeing a lot more of that inventory remaining in the DC, because retailers are realizing that their planning systems aren't that great," says Bengier. Retailers are therefore pulling inventory based on demand rather than pushing it based on unit sales goals, and consumers' cross-channel expectations have fueled this concept of the DC as a fulfillment center, pulling merchandise where it's needed, when it's needed.

The Out-Of-Stock Killer: Cross-Channel Visibility And Flexible Fulfillment

Even the best avoidance plan will not preclude you from experiencing out-of-stocks — they are, to some degree, inevitable. That's why you need a plan to deal with them in a fashion that saves sales and keeps customers satisfied.

Bengier and Sterling Commerce have long been proponents of fulfillment as the focal point of retailing, an increasingly relevant position in the current age of any time, anywhere commerce. Now, Sterling Commerce has released a packaged solution called Sterling Always In Stock, designed to improve the lack of supply chain visibility from the perspective of the store and leverage the trend toward fulfillment flexibility. While Bengier is quick to point out that Sterling Always In Stock is based on the company's distributed order management solution. It also integrates inventory management, sourcing, and fulfillment capabilities.

In short, the solution is an assisted-selling, kiosk/POS/internet/call center-enabled software that provides stores with inventory visibility across locations, including the DC. By providing store associates and call center personnel with an alternate means of procuring merchandise and empowering the consumer with choices for fulfillment (i.e. pick-up in store, home delivery), the approach enables retailers to save the sale. Bengier says that early findings point to ship-to-home as the predominant means of fulfillment, which consumers find convenient and retailers appreciate because it keeps labor away from stores. Most retailers, he says, are happy to cover shipping costs in return for saving the sale.

Bengier says the company's new solution is configurable, with many inventory and fulfillment parameters retailers can control according to their strategy. You can determine whether to enable this functionality on clearance merchandise, for example, or whether to extend it to stores, DCs, or both. Retailers can also opt to route transactions conducted via Sterling Always In Stock through the call center or Web, allowing store associates to focus on store activities.

How do you avoid out of stocks? When they strike, how do you deal with them? Let me know at matt.pillar@jamesonpublishing.com