A Comprehensive Guide To Retail Out-of-Stock Reduction

A Comprehensive Guide

To Retail Out-of-Stock Reduction

In the Fast-Moving Consumer Goods Industry

A research study conducted by: Thomas W. Gruen, Ph.D., University of Colorado at Colorado Springs, USA

And Dr. Daniel Corsten, IE Business School Madrid

A Comprehensive Guide To Retail Out-of-Stock Reduction In the Fast-Moving Consumer Goods Industry

A research study conducted by: Thomas W. Gruen, Ph.D., University of Colorado at Colorado Springs, USA

And Dr. Daniel Corsten, IE Business School Madrid

This study was funded by a grant from the Procter & Gamble Company

Acknowledgements

Supporting Trade Associations:

Grocery Manufacturers Association Food Marketing Institute National Association of Chain Drug Stores

Partner Academic Institutions

Technical Eindhoven University of Technology, TU/e Retail Operations Group, The Netherlands MIT

Special thanks and recognition for his significant contributions to this report:

J.P. Brackman, Global Retail Presence Manager, Procter & Gamble Company

Special thanks to the data partners who contributed significantly to this report

? Copyright 2007 by the Grocery Manufacturers Association (GMA), Food Marketing Institute (FMI), National Association of Chain Drug Stores (NACDS), The Procter & Gamble Company (P&G) or the University of Colorado at Colorado Springs. All rights reserved. No part of this publication may be reprinted or reproduced in any way without express consent from GMA, FMI, NACDS, P&G or the University of Colorado at Colorado Springs.

Contact for permissions: tgruen@uccs.edu; dcorsten@london.edu

ISBN: 978-3-905613-04-9

Table of Contents

Executive Summary

i-vi

Introduction........................................................................................................................................................... 1-6

Overview, Objectives, and Key Findings.................................................................................................................................................. 1 What is an Out-of-Stock?.............................................................................................................................................................................1-3 Guide to Using this Report.........................................................................................................................................................................3-5

Chapter 1: Understanding the Total Cost of OOS............................................................................................... 7-12

1-1. Introduction and Overview With All of This Technology, Why Isn't Availability Higher?................................................ 7 1-2. A Generally Unrecognized Problem: Costs of OOS > Lost Sales...........................................................................................7-9 1-3. Root Cause Analysis Drives a Distinction Between Store and Shelf OOS Conditions ............................................. 9-10 1-4. We Know How Consumers Respond to OOS Conditions ..................................................................................................10-11

Chapter 2: Understanding OOS Through Measurement.................................................................................. 13-23

2-1. Understanding the Measurement and Identification of OOS..........................................................................................13-18 2-2. Focus on the Items that Cause the Majority of OOS: There Really Aren't Very Many Fast Movers......................18-19 2-3. Viewing OOS Patterns.....................................................................................................................................................................20-23

Chapter 3: Lowering OOS Rates--Our Hypotheses and Related Studies...................................................... 25-40

Overview............................................................................................................................................................................................................ 25 3-1. Ordering What You Need When You Need It: The Case for Item Data Accuracy........................................................25-26 3-2. Ordering What You Need When You Need It: The Case for Inventory Accuracy........................................................27-30 3-3. Demand Forecasting Accuracy...................................................................................................................................................30-32 3-4. Having the Goods Arrive When You Need Them .................................................................................................................32-34 3-5. Making Room on the Shelf: The Case for Demand-Based Planograms .......................................................................34-36 3-6. Knowing Where Everything Should Be: The Case for Planogram Compliance .........................................................36-38 3-7. Knowing Where Everything Should Be: Keeping the Shelves Straight.........................................................................38-39

Chapter 4: Getting and Keeping Lower Levels of OOS...................................................................................... 41-48

Overview............................................................................................................................................................................................................. 41 4-1. The Ability to Measure Provides the Ability to Focus...........................................................................................................41-42 4-2. Taking Action.....................................................................................................................................................................................42-44 4-3. A Comprehensive Approach to Reducing OOS Events, Duration, and Losses..................................................................44 4-4. Practical Steps to Address OOS of High Demand Items......................................................................................................44-46 4-5. Bringing It All Together and Looking Ahead...........................................................................................................................46-47

Appendix............................................................................................................................................................... 49-56 Authors' Information......................................................................................................................................... 57-58

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