In times of crisis, when companies' sales volumes drop and goals are not achieved, the climate in organizations is one of extreme frustration and concern. But these moments generate great opportunities for changes towards sustainable gains in the long term. It is in challenging environments that companies need to strengthen. In periods of calm, the boat moves quickly, without having to take care of its sails, but the cessation of winds exposes the need for changes in companies, also highlighting the mistakes made in times of favorable winds.
In this scenario, company executives need to assume the extremely challenging mission of formulating alternatives that can lead to the desired sales volume, with solid cost control. Generating demand in a crisis scenario is extremely hard and difficult work that, most of the time, requires enormous effort. So, why not take advantage of an existing demand, which was suppressed by the unavailability of products, to generate more sales?
Out of Stock Causes
Studies show that about 60% or more of purchasing decisions are made at the point of sale, showing the importance of having products available for the shopper. This way, the lack of products generates losses both for manufacturers and for the retailers that resell. Despite this, ruptures are more frequent than desired. The global average of Out of stock of retail is around 8,3%. In Brazil, the situation is a little worse: in a survey carried out with Brazilian retailers, the rate of stockouts on shelves reaches levels of 10% on average, that is, one in ten products is missing from market shelves.
Considering the maxim that says: “a product out of the shelf is a rupture, as it will not be sold”, it is necessary that the manufacturing companies and the retailer jointly seek to identify the reasons for this high value of stockout at points of sale in order to mitigate it.
In this direction, a study conducted by AC Nielsen in partnership with NeoGrid and illustrated in Figure 1, concluded that:
- in 32,7% of the cases, the cause of the stockout was the existence of virtual stock, that is, the retailer's system indicated that there was stock available when in reality there was not;
- in 32,8% of the cases, despite having stock in the store, the shelves were out of stock due to replenishment problems; It is
- in 16,1% of the cases there was a shortage in the store's stock, in fact, caused by supply problems.
Figure 1 - Reasons for the lack of products on the shelves
Source: AC Nielsen and Neogrid
It is worth mentioning that this average level of 10% rupture is not equally critical for all product categories. In some, 10% rupture can be considered a low value, while in others it can be considered a high value. This difference is mainly due to factors such as the predictability of sales and the difficulty of moving products. Alcoholic beverages, for example, which have the highest degrees of rupture, are directly influenced by temperature fluctuations (warmer weather leads to greater sales). Another factor that influences shelf stockouts is excessive manipulation of prices and promotions by the retailer to boost sales. Table 1 helps to illustrate these differences:
|
Product Basket |
Gondola Breakage | Virtual Stock |
|
Beverages |
20,2% |
10,8% |
|
perishable food |
13,5% | 5,1% |
|
Soft Drinks |
11,9% |
7,3% |
| Cleaning | 9,4% |
5,6% |
|
Sweet Grocery |
9,2% | 5,5% |
| salty grocery store | 8,8% |
5,7% |
| Hygiene, Health and Beauty | 8,0% |
4,5% |
Table 1 - Percentage of shelf stockouts by category
Source: SuperHiper Research (Abras)
To simplistically minimize the lack of products, it would be enough to concentrate inventories at the ends of the chains (where consumption occurs), that is, at retailers. But the reality is much more complex than that. It would not be fair to blame stockouts on the retailer's unwillingness to keep stock, especially since this unwillingness is part of retail's nature.
To understand this, it is important to remember that the highest retail costs are associated with the acquisition of goods (variable costs). Furthermore, as it is the link in the chain that works with the tightest margins (between 2% and 4%), its profitability is based on inventory turnover. Thus, holding capital in the form of inventories can be considered an inefficiency. It is imperative, therefore, that the solution to stockout problems be built jointly, observing the particularities of the business.
Recommendations
Manufacturers of consumer goods cannot face the rupture at the POS as an exclusive retail problem. It is necessary to work together to design initiatives that can mitigate the stockout problem, such as:
- optimization of the assortment of products to be purchased by retailers, so that there is no excess inventory accumulated in low-turnover products, or, in other words, that there is no capital tied up in a product that does not generate recurring sales;
- improvement of distribution management, aligning the most appropriate frequency of deliveries and avoiding delays and returns that generate store disruptions;
- proper planning of store replenishment visits, so that there is a guarantee of supply to the gondola while there is stock available in the store;
- review of the inventory management policy to ensure the availability of products in the DCs.
Finally, only a few examples have been mentioned above., but there are a series of management initiatives, especially in relation to the design of service models, logistical operations and customer service which, if properly structured and implemented with the support of information technology and robust processes, could increase productivity in operations and reduce out-of-stock at points of sale.
References
Gruen, Thomas W. and Daniel Corsten (2008), A Comprehensive Guide to Retail Out-of-Stock Reduction in the Fast-Moving Consumer Goods Industry.
Gruen, Thomas W., Daniel Corsten, and Sundar Bharadwaj (2002), Retail Out of Stocks: A Worldwide Examination of Causes, Rates, and Consumer Responses.
Zinn, Walter and Liu, Peter C. (2001), Consumer Response to Retail Stockouts.
P&G – A Comprehensive Guide To Retail Out-of-Stock Reduction In The Fast-Moving Consumer Goods Industry:http://www.nacds.org/pdfs/membership/out_of_stock.pdf>
<http://www.copapa.com.br/noticias-setor/ruptura-inimigo-invisivel-das-vendas/>
Nielsen – Disruption: Causes and Impacts in the supply chain and consumer behavior.
Claudio Czapski: The impact of disruptions in retail and the involvement of the logistics operator (Revista Mundologística – Edition 10 MAY/JUN 2009).
Claudio Czapski: Retail and Industry do not speak the language of the consumer (ECR Brasil).
