On Shelf Availability

On Shelf Availability
Introduction
What Is "On Shelf Availability"?
ProductWorld is a large, global consumer products company. For years, ProductWorld was successful by
marketing their well-known brands through traditional marketing channels, like TV ads…and a strong
sales team that pushed products to new customers…and a discounting program that strategically
discounted products at crucial times to encourage forward buying.
Retail King is one of the largest retailers in the world, growing at a double-digit pace for nearly 20 years.
And although Retail King used to rely on the big suppliers like ProductWorld to keep their shelves filled
with well-known brands, today, Retail King is its own brand. Their private label products, along with all the
big CPG companies' products, vie for pride of place on Retail King shelves alongside those of a growing
number of niche suppliers.
ProductWorld may not be as vital to Retail King as it used to be, but ProductWorld executives are
determined to keep a close working relationship with Retail King. To that end, the leadership at
ProductWorld established a product supply team. This cross-functional team is focused exclusively on
supporting Retail King.
Karen Martin is the newly named product supply team leader. She just got a call from one of the big
bosses at ProductWorld, the vice-president of sales. Recent reports show ProductWorld’s sales are
declining at Retail King. Even during promotions, ProductWorld is not getting the expected bump in sales.
ProductWorld sales are up at other retailers, so the issue is with Retail King.
Karen's mission is to lead her team in finding out why—why are sales declining? why just at Retail
King?—and in determining how to address the problem.
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The Importance of On Shelf Availability
In the last 20 years, we have seen a dramatic shift in the balance of power between manufacturer and
retailer, and between retailer and consumer. Manufacturers once decreed what retailers could and could
not carry. New products fought for limited space on retailers' shelves. Loyalty to brands kept consumers
coming back even if shelves were out of stock.
Today, consumers who do shop at bricks and mortar stores expect to find what they want on the shelves.
If they do not, they may go to another store (bad news for the retailer), substitute another brand (bad
news for the manufacturer), or cancel their purchase altogether (bad news for everyone).
Today, manufacturers need a demand-driven on shelf availability strategy to keep their products on the
shelves and in consumers' shopping carts. Why?
"In stock" essential to being competitive
In metropolitan areas worldwide, retailers compete with traditional brick and mortar competitors as well as
with an untold number of virtual competitors. Today, if manufacturers' products are out of stock, retailers
may promote their own private labels…or fill the shelves with a competitor's product…or reduce the
amount of shelf space given to a fast-moving product. Thus, having products in stock is essential for
competitiveness.
In this era of heightened competitiveness, retailers face a double dilemma—stores so large that
consumers find them inconvenient, inaccessible, and overcrowded; and a wide variety of niche
competitors. Retailers see in-stock availability of products as a way to differentiate themselves from their
competitors.
Increasingly difficult to satisfy customers
Increased expectations of zero defects, coupled with consumer expectations of instant availability, put
enormous pressure on retailers, and by extension, manufacturers as well, to have a high level of on shelf
availability.
Products continue to proliferate, making the task of keeping products in stock and available all
the more difficult. On-shelf availability is critically important to shoppers having a satisfactory
shopping experience. As the chart indicates, the probability of a shopper who purchases 10 items being
100 percent satisfied is only 90 percent, even if there is 99 percent availability. If product availability drops
to 95 percent, the probability of a shopper purchasing 10 items being satisfied drops to 60 percent. At the
same level of availability (95 percent), a shopper purchasing 20 items will be satisfied only 36 percent of
the time.
Consumers have more options via the Internet
In certain product categories, consumers are more likely than ever to shop the Internet, where they can
easily compare price and quality across retailers—without ever visiting the stores. Consumers are also
able to search and find new retailers who may have a broader assortment in a particular product
category. This means that retailers and manufacturers must compete harder to retain customers.
Advances in technology offset by…
It was thought that improvements in technology would eliminate or substantially reduce out of stock
situations. That has not been the case: even with all the investments in inventory tracking technology,
Efficient Consumer Response (ECR), category management, and supply chain management initiatives,
the overall level of out of stocks on store shelves has not been reduced from the levels reported in the
'60s. Improvements in technology are offset in many ways:
• Process complexity (from SKU proliferation)

• An increasing variety and complexity of promotions (see chart; Grocery Manufacturers of
America 2002)
• Store-specific assortments
• Cost pressures on retailers, often forcing them to employ part-time and less skilled
employees
Course Objectives
This course explores the consequences of poor on-shelf availability to retailers and manufacturers, key
causes of poor on-shelf availability, and ways to improve on-shelf availability.
When you have successfully completed this course, you should be able to:
• Understand the costs of out of stocks and the consequences on consumer behavior
• Identify and discuss the causes of poor on-shelf availability
• Identify and explain ways to improve on-shelf availability
• Establish a continuous improvement process to address poor on shelf availability
CONSEQUENCES OF PRODUCT UNAVAILABILITY
Overview
How do consumers respond when the products they want are not on the shelf? The old model, where the
consumer meekly tried again in the next shopping trip—that model is almost extinct. Today, if consumers
cannot find the brand they want on the shelves, they are more likely to purchase a different brand or go to
a different store. This is a marked change from two or three decades ago, when consumers were
stubbornly brand loyal. Back then, there were only a few brands in a market category, and brands were
stable. A consumer might use a favored brand over most of his or her lifetime.
Today, however, loyalty and allegiance to a specific brand have been diminished. Consumers enjoy a
wide array of brands from all types of global producers. Consumers have seen that brands can have short
life cycles…or merge with or be subsumed by other brands…and have their names changed entirely. In
the consumer’s mind, it is the brand that has changed, and become less durable. And when consumers
no longer believe in a brand, they become more open to trying new or different brands.
Poor on shelf availability has profound effects throughout the supply chain, and has long-term economic
consequences. In this topic, we look at what happens when product is out of stock, causing poor on shelf
availability.
The Retail Manager Perspective
Retail managers are often rewarded by sales (or gross monetary volume) contribution per square foot of
retail space. It makes sense that this would create a bias toward higher profit and faster moving
products—both of which require high on shelf availability.
When products are out of stock, a retail manager can respond to the dilemma in different ways. The retail
manager may simply place a substitute product (either a different size or style) or even a competitor’s
product in the empty shelf space. If the out of stock situation lingers, to divert attention and not lose sales,
the retail manager might promote products that are in stock. If a product is consistently unavailable, and
perceived as a supply problem, the retail manager may reduce its shelf space allocation or eliminate the
product altogether.
Traditional retailers compete against an ever increasing number of niche retailers, who can offer a higher
level of customer service and a deeper selection of specialized products within their niche. To be
competitive, traditional retailers need high on shelf availability. From the retail manager perspective, what
can suppliers do to help?
• A valued supplier delivers the quantity of goods ordered undamaged and on time.
• Faster moving products tend to be out of stock more frequently. A valued supplier helps
maximize sales per square foot by keeping fast moving products in stock.
• A valued supplier packs and configures their products to allow easy and effective
unpacking and movement to the store shelves.
Consumer Response to Out of Stock: Buy Item at another Store
The consumer has the option to buy at another store. This has more of an effect on the retailer than it
does on the manufacturer. The manufacturer still receives the benefit from the sale and the customer
allegiance to the brand, but the retailer loses the sale and, perhaps more importantly, faces the possible
alienation of the customer—because they were unable to find their product in the retailer’s store on the
first attempt. This also distorts demand because the demand at the original store is now transferred and
recognized as demand at the second store—not as the loss of sale that it actually was to the first store.
Consumer Response to Out of Stock: Substitute another Brand
The consumer might opt to substitute another brand. Depending on their level of trust in the retailer, the
consumer might even opt to substitute the retailer’s private label brands.
Clearly, this has greater implications for the manufacturer than for the retailer. The manufacturer loses the
sale and has an inaccurate picture of demand. The retailer is still able to recognize a sale of product,
although the replacement product may have lower margins for the retailer. Since this is not the original
intent of the sale, this distorts the retailer’s perception as to consumer demand for the original product
and for the substitute brand.
Over the long term, the greater danger to the manufacturer is that the consumer will be satisfied with the
substitute brand and will continue to purchase the substitute brand on a regular basis. Any time a
consumer tries a substitute brand, the manufacturer faces the loss of that consumer over the course of
the consumer’s purchasing lifespan.
Consumer Response to Out of Stock: Substitute Same Brand
The consumer may substitute the same brand using greater or lesser quantities or a modified product.
For instance, the consumer could buy two smaller-sized products to substitute for the one larger product
that was unavailable. Or, the consumer could purchase unsweetened iced tea, despite having a strong
preference for sweetened tea of the same brand.
Manufacturers want it to be easy for consumers to stay brand loyal. Instead of having one choice—
ketchup—consumers can substitute a different package for their favorite ketchup ("fridge door fit") or try
organic, reduced sugar, one carb, or light ketchup…all from the same brand line.
Consumer Response to Out of Stock: Delay Purchase
When product is out of stock, consumers have the option to delay the purchase. On the one hand, a
delayed purchase would seem to have minimal impact on the retailer and manufacturer since they secure
the purchase at some point in the future. But, a closer look reveals that the delayed purchase creates
issues in planning and replenishment.
A delayed purchase is effectively phantom demand. For instance, the real demand could come in the
month of June, but because of the delayed purchase, the phantom demand appears in August when the
transaction is completed by the consumer. Delayed purchases distort the view of real demand and
inaccurate information always makes supply chain management more difficult for the manufacturer,
distributor, and retailer.
Consumer Response to Out of Stock: Cancel Purchase
Another option available to consumers is simply not to purchase. This is worse than the delayed
purchase. Whereas the retailer and manufacturer eventually recognize the revenue from a delayed
purchase, the revenue from a “do not purchase” decision is permanently lost, and, similar to a delayed
purchase, a “do not purchase” decision distorts the actual picture of demand.
How Do Consumers Decide?
Consumers decide how to react to product unavailability based on what it costs them to go without.
Economic theory breaks that out into opportunity cost, substitution cost, and transaction cost. (See the
chart for likely interactions and expected consumer responses (Campo et al 2000).) In a split second, the
consumer makes a decision that can affect sales and alter that consumer's buying behavior.
Opportunity cost is the cost of not being able to consume the product immediately. For instance, the
cost of not having diapers right when you need them may be high, so the consumer is likely to be
proactive and shop at another store or buy a substitute.
Substitution cost is the effect on the consumer of having to use a less favored product or one that
doesn't work as well. The substitution cost of diapers may be high if Baby has sensitive skin, or is hard to
fit. But where brands are not differentiated in consumers' minds—granulated sugar, paper towels, salted
snacks—the substitution cost may be low.
Transaction cost refers to the time and effort required to complete the transaction at another time. A
classic example would be a family living in a rural area that makes long and infrequent trips to a retailer.
While the family may have a strongly expressed preference for a brand of diapers, if the preferred brand
is unavailable the family may purchase a less favored substitute brand. The cost of returning to the
retailer just to make a single purchase is too high. Conversely, a consumer living in a densely populated
urban area may walk by the store on the way home from work every day. It takes almost no time and little
effort to return to the store to complete the purchase, so the transaction cost is low.
Economic Consequences
When consumers either substitute another brand or cancel a purchase, manufacturers lose 35 percent of
intended purchases. When consumers either cancel a purchase or buy the item at another store, retailers
lose 40 percent of the intended purchases (Gruen et al 2002).
That makes the economic loss from out of stocks very real. Manufacturers and retailers experience a
significant loss of sales. Research has shown that the average worldwide out of the stock rate was 7.4
percent across a variety of products in the grocery channel (Grocery Manufacturers of America 2002).
The typical retailer loses about 4 percent of sales due to having items out of stock. That means a typical
$10 billion retailer could expect to lose about $400 million per annum in sales based on out of stock.
Topic Summary
The consequences of being out of stock are both immediate and long term. In the short term, either the
manufacturer, the retailer, or both may lose sales. Both experience a sales loss when the purchase is
cancelled or delayed. The retailer loses a sale when the consumer goes to a competitor to get the item.
When the consumer is insistent on getting the particular brand, the out of stock has created a dissatisfied
consumer—who may now shop at a competitor’s store.
In the longer term, out of stocks cause lost sales, which harm profitability. Even when sales are not lost,
the true nature of demand is distorted because the consumer is forced to alter his or her real preference
and substitute another or the same brand.
No matter which choice the consumer makes, poor on shelf availability erodes the brand loyalty that both
the manufacturer and the retailer spend considerable effort and resources to establish.
CAUSES OF PRODUCT UNAVAILABILITY
Overview
Most of the responsibility for fixing the out of stock problem rests with retailers. Seventy-five percent of out
of stocks (in developed countries; in fast moving consumer goods) can be traced to retail store practices.
The better a store executes its planning, replenishment, and ordering practices, the better their on shelf
availability.
Distributors and manufacturers have a role to play, too, in improving on shelf availability. First, though,
retailer, distributor, and manufacturer have to understand how each other's practices cause out of stocks
and worsen shelf availability. Then, they can work together to solve the out of stock dilemma. In this topic,
we look at practices at the retailer (in the store and on the shelf) and upstream, at the distributor and at
the manufacturer, that cause product unavailability.
Retail Practices That Cause Out of Stocks: Focus on Planning &
Forecasting
Poor planning almost certainly ensures higher than average out of stock levels. Poor planning can be the
result of poor communication—an item is discontinued, but the manufacturer does not communicate this
to the retailer. Let's look at other examples of retailer planning practices that cause out of stocks:
Undetected Shift in Consumer Demand

One of the biggest causes of out of stock is an undetected shift in consumer demand. For instance,
consumers are more conscious of whole grain content in cereal products, so cereals with high levels of
whole grain experience increased demand. This shift in consumer demand cannibalizes sales of non-
whole grain cereal products.
Peak Demand vs. Average Demand

For some fast moving SKUs, peak demand is many multiples of the average demand for a SKU. It takes
sophisticated planning and forecasting to anticipate the radical shifts in demand these fast movers can
experience.
Out of Stock by Day of Week

Out of stock rates vary throughout the week, with Sunday and Monday having the highest out of stock
rates, with the rate decreasing throughout the week. This pattern is logical when one considers that
weekends are the biggest shopping days, and retailer delivery to stores does not occur until Monday or
Tuesday. The typical retailer has product coming in on Monday and Tuesday. Product depletion occurs
throughout the week, reaching its lowest level at the weekend. See the chart (Gruen et al 2002).
Promotional Activities
Promoted products are twice as likely as non-promoted products to be out of stock. The good news:
some promotions are successful beyond the retailer’s expectations, generating high demand from
enthusiastic consumers. The bad news: these promotions create disappointed, not satisfied, consumers
when there is an insufficient supply of product. Given that a higher demand is anticipated due to the
promotion, this problem should be fixable if retailer, distributor, and manufacturer work together on joint
promotional activities.
Insufficient Safety Stock
Safety stock is the stock in excess of expected demand that a store or distributor carries. Safety stock
hedges against interruptions of supply, fluctuations of demand, and other issues. However, if the safety
stock calculation used by the retailer or distributor is not sophisticated enough, that can lead to an out of
stock. For instance, safety stock may be calculated at a product category level rather than for individual
SKUs. So, a store might have enough frozen vegetables (product category), but always be out of stock on
corn (SKU).
Retail Practices That Cause Out of Stocks: Focus on Replenishment
Some stores use the visual inspection method to evaluate inventory levels—somebody walks around the
store and just looks. As you can imagine, this method can result in out of stocks. Let's look at
replenishment problems related to shelf management and allocation, replenishment signals, and
backroom operations.
Poor Shelf Management

It is a replenishment problem when the product is in the store but not on the shelf when the consumer
wants it. When products are not in their designated area, they are effectively lost or misplaced until
certain volume of product moves through.
Product is often in the backroom of the store, but it could be anywhere. It could be at the end of the
aisles, but unpacked; and thus, not on the shelf where consumers can easily find it. (Consumers typically
will not open case packs that are clearly not yet stocked.) Shelf stockers may have a lift with a number of
products on it, and the nature of their established route means product is on the lift but does not get
replenished until late in the day.
Insufficient Shelf Space Allocation

It is a replenishment problem when inadequate shelf space is allocated for a SKU. When this happens,
the product runs out before the regular restocking occurs. In this situation, a product could be out of stock
in the mid-afternoon on a daily basis even if restocking occurs every morning. The key to fixing this
problem is to obtain a greater allocation of shelf space.
Lack of Adequate Signal to Management

It is a replenishment problem when management is not clearly signaled that the product is not on shelf.
Manual processes
Manual processes often do not enable clear signals. For instance, the visual inspection
has the problem of human error. Walking around the store may not be enough to spot
products that are nearly (although not yet) out of stock, or situations where a competitor's
product has been used to fill empty space, or where stockers rearranged products to
make a shelf look full.
Or, the sheer number of products on the shelves, coupled with other working pressures
on retailers, may not allow for thorough examination of the shelves. At some point the
number of SKUs exceeds the ability of visual inspectors and their expert knowledge to
determine proper shelf replenishment cycles. Retailers with a large number of SKUs
need data-driven replenishment processes in order to properly replenish their vast array.
Otherwise, a shelf can quickly become out of stock.
Electronic processes
Even electronic, data-driven replenishment processes can result in bad signals. For
instance, a consumer buys 24 cartons of yogurt, but the checker swipes one carton—the
delicious pineapple orange—and then hits "times 24." The point of sale data is
completely off, and the shelves will soon be stocked with an excess of pineapple orange
yogurt.
Disorganized Backroom Operations
Disorganized backroom operations can contribute to the slow movement of product from the store’s
unloading dock to its shelves. That slowed movement is a replenishment problem.
Chaotic Operations
A backroom store operation that is chaotic and does not have designated areas for
product will frequently experience out of stocks. Such operations may have a difficult time
finding the right size product for given shelves. Or, the unloading and staging process
may put a particular product in a corner and have it blocked by stacks of other products
that have to be either moved to shelves or moved aside before the product can be
accessed.
Poor Inventory Handling Procedures

Poor backroom inventory handling procedures impede the ability of store personnel to get
the product from the backroom inventory to the shelf. This problem can be rooted in the
logistics of the store’s backroom operations. If a product happens to be stored against a
back wall and behind numerous other products, it is more likely to become out of stock:
stockers typically stock products that are closest to the front of the store, easiest to move,
and easiest to unwrap and stock.
Poorly Designed Packaging

Stock personnel can also become frustrated with a manufacturer’s packaging. They may
find the shrink wrap difficult to remove, the case packs large and cumbersome, or the
boxing and packaging flimsy and likely to spill or break. Stockers may not enjoy stocking
certain troublesome products, and may delay the shelf replenishment of those products
for as long as possible.
Poorly designed packaging that is not stackable may contribute to slow shelf
replenishment. In stores with narrow aisles, the stockers may be admonished to stack
product at the end of the aisles while they work so customers can navigate the store with
ease. To the extent that boxes, crates, and wrapped products are not stackable, stockers
will be reluctant to clutter aisles with those products, and make their replenishment a low
priority.
Another issue may be the package sizing as it relates to the shelf space. If a product is
0.25 meters high, and the space between the designated shelves for the products is 0.30
meters, stockers will be able to stock the products, but not easily or quickly.
Retail Practices That Cause Out of Stocks: Focus on Ordering
Poor ordering practices cause out of stocks.
Ordering Too Little or Too Much

The retail store may order too little or too late, so the distributor cannot deliver the product before it runs
out on the shelf. The retailer may order too much—in bulk to get a discount, or via a standing order—to
be easily stored or shelved.
Uncoordinated Promotional Activities

Uncoordinated Promotional Activities Retailer and manufacturer should jointly plan and collaborate on
promotional activities to ensure the highest probability of success without excessive product shortages. If
they do not, the retailer might misjudge demand for an item and order an insufficient quantity. For
instance, a sale on frankfurters at half price may drive a significant increase in the sale of buns by a
different manufacturer.
Upstream Practices That Cause Out of Stocks
Issues unrelated to store policy also affect out of stocks. Let's look briefly at poor practices upstream, at
the warehouse/distributor and manufacturer.
Warehouse/Distributor Practices That Cause Out of Stocks

The warehouse may have insufficient inventory to meet demand, and so, may scratch the retailer’s order.
The warehouse or distributor may have misplaced the order or allocated the order to another retailer to
meet an unexpected surge in demand. Even though a particular shipment is designated for retailer A,
when a larger order with a higher margin from retailer B comes in, the distributor may well allocate the
manufacturer’s product to retailer B even though it was originally designated for retailer A.
Manufacturer Practices That Cause Out of Stocks
Inaccurate forecasts
Manufacturer practices may also contribute to out of stocks. The manufacturer’s
contribution to the problem typically stems from inaccurate forecasts, where they did not
detect a shift in consumer demand, or did not meet the new demand with the appropriate
changes in production and fulfillment. Their production capabilities may have been
constrained, or they may have allocated production lines to other, more profitable
products.
Missed shipments
The manufacturer may also miss shipments to warehouses or distributors. This can occur
in a case where a manufacturer is waiting to build a full container or trailer load of
product, or where there is a regularly scheduled shipment of a mix of products but a
product is produced too late to meet the deadline for the shipment of mixed goods.
Unsophisticated supply chain

The sophistication of the supply chain can also determine whether products are in stock
or out of stock. Many manufacturers build to a plan and push product to distributors and
wholesalers based on a distribution plan. This build and ship practice may not align well
with actual demand in various channels. For example, products such as coffee, tea, and
ice cream have significant demand variances based upon regions within a country or
between countries. Unsophisticated distribution plans do not differentiate based on store
size or sales volume of retailers within given territories. The more sophisticated supply
chain and distribution practices account for variances based on regions, historical sales
volumes, shelf space allocations, and retailer type.
Warehouse / Distributor & Manufacturer Practices: Substitution of Orders

Another problem arises when the manufacturer or distributor does not have the requested size in stock
and ships a slightly larger size to substitute for the quantity ordered. For instance, if the retailer orders 50
cases of half-liter jars of pickles, and the manufacturer substitutes 25 cases of pickles in one-liter jars, the
bigger one-liter jars may not make it to the retailer’s shelves. They may be too big to fit properly on the
shelves designated for the smaller half-liter jars. While the manufacturer or distributor thinks they have
satisfied the order because they have shipped the same aggregate quantity, just in a larger container, the
retailer is completely dissatisfied and frustrated.
A Supply Lesson From Auto Supplies
Manufacturers face some of the same problems
S retailers do with promotions. For instance, when auto
I parts stores run discounts on motor oil, it almost
D always leads to an increased sale of oil filters as
E consumers typically change their oil filter when they
B change their oil. However, the manufacturers of filters
A are distinct and separate companies from the
R producers of motor oil. An oil filter manufacturer would
be well advised to have visibility into an auto parts
chain’s promotional activities for motor oil.
Topic Summary
It takes constant attention to the smallest details to keep on shelf availability high—replenishing shelves
regularly and consistently…planning for consumer demand amid change, fluctuation, and
instability…managing promotions including markdowns, bundling, and manufacturer’s coupons…and so
on.
The on shelf availability picture is complicated by replenishment, planning, and ordering practices at the
retailer, which are not always at best practice level. Retailers that are operationally excellent get the right
products to the shelves at the right time, which is when consumers are ready to buy. In that moment—the
moment of truth—on shelf availability increases consumer loyalty and decreases lost sales.
Understanding the causes of product unavailability is a big step toward starting to fix the problem. In the
next topic, we look at ways to fix the problem of product unavailability.
IMPROVING ON SHELF AVAILABILITY
Overview
A study of seven European countries by an international research institute showed that average on shelf
availability was only about 93 percent (ECR Europe 2003). And that's an average. Some categories were
as low as 70 percent. If you recall, one of a consumer's options when faced with an out of stock is to
cancel the purchase. Even if you just count the nine percent of consumers who do that—who cancel their
purchases—the cost of out of stocks is in the billions.
Improving on shelf availability should be simple: get the right product on the shelves, in the right
quantities, at the right time. A simple concept, but not easy to do. On shelf availability touches so many
business processes, and so many operations, at so many stops along the supply chain. Where would you
start?
Start with collaboration. Improving on-shelf availability is inherently a collaborative effort. While some
limited improvements can be made without retailer collaborating with manufacturer, or vice versa, the real
breakthroughs come when retailer and manufacturer look for common goals, and think beyond self
interest. Collaboration is the main message of this topic.
In this topic, we look at how to pin down a definition of "out of stock." Then, in collaboration, retailers and
manufacturers figure out why out of stocks are really happening: what are the root causes? Finally, we
examine seven ways to improve on shelf availability.
Defining: Out of Stock & Availability
You cannot hope to improve on shelf availability until there is agreement on what constitutes an out of
stock.
Defining "out of stock"

Out of stock refers to a condition where something that is normally sold is presently not available.
"Presently not available" means different things to different retailers. So, a generic comparison of out of
stock rates at two separate retailers may be inadequate. For instance, out of stock is when…
• Product is not in the store's backroom or stockroom, or…

• Product is not in the retailer’s distribution center, or…
• The web retailer does not have the product and it cannot be direct shipped from the
manufacturer within two to three weeks…and so on
From a consumer's point of view, out of stock is when… (ECR Europe 2003):
• Product is not found on the shelf where a shelf edge ticket is provided…when product
placed on shelves and in special displays is not found in either place…and when a
product has been de-listed by store staff
It is important to understand how your collaborators and others define out of stock. This will help you set
targets for improvement.
Reducing out of stocks improves "availability"

Availability is the ability to provide the desired product in a saleable condition when and where the
customer wants it. Generally speaking, availability is calculated as the percentage of time that a product
is on shelf when a consumer wants it based on factors like sales data, historical sales, backorders, and
lost sales.
Availability metrics are plagued by people issues: programs not executed at the store level, items not set
up properly in the replenishment system, shelves out of stock even when inventory is available. For a
comprehensive review of availability metrics and other retail metrics, see the Supply Chain Academy's
Introduction to Retail Performance Measures.
7 Ways to Improve On Shelf Availability
Now, let's look at seven specific ways to improve on shelf availability. In this approach, consider
"Measurement" and "Management attention" to be prerequisite to the other five: Replenishment system,
Merchandising, Inventory accuracy, Promotional management, and Ordering system.
You will not see much improvement if you focus just on one, or if the effort is unilateral. Improvements to
on shelf availability require collaboration, and integration among these seven levers. For example, it
would be useless to focus only on shelf stocking practices (merchandising) and not on whether the right
product is being delivered at the right time (replenishment). Or, it would be wasteful to revamp your
promotional practices without collaborating with the trading partners who suffer the inefficiencies along
with you.
1. Measurement
You cannot judge the depth of the out of stock problem until you know when the problem starts, and it
starts with a measure. Measurement is possibly the best way to improve on shelf availability. This is
where you identify strategic opportunities and root causes, and where you set targets for improvement
and continuously monitor them.
Measures of out of stock vary widely. At different retailers, different things get counted: instances of out of
stock, sales losses in units, or monetary sales losses.
From the same measure, different implications

A typical measurement is the number of days of stock for an item, or the percentage of time in a given
interval the product was out of stock. Understanding the underlying data is important…
Consider two items, both of which were out of stock 17 percent of the time over a 90 day quarter. We
have more insight if we learn that product A was out of stock every Saturday, and thus out of stock 17
percent of the time, while product B was out of stock for 15 consecutive days, but in stock for the other 75
days of the quarter.
In both cases the out of stock rate for the quarter was 17 percent, but the implications are very different.
"Measurement" is a prerequisite
Measurement (along with Management Attention) is a prerequisite to implementing other improvements.
You must have a measurement program in place—identify strategic opportunities, identify root causes,
set targets, establish a continuous improvement process—before embarking on other on shelf availability
improvements.
1. Measurement (continued): Identify Strategic Opportunities
An effective improvement program focuses on strategic opportunities and root causes, not on measuring
every single one of the thousands of SKUs on the shelves. Strategic opportunities are the products and
stores that represent high value opportunities or quick wins. High value opportunities are the stores that
are consistently out of stock on a broad range of products…and the products or product categories that
are consistently out of stock across a large number of stores or a range of territories. Then you can focus
your efforts on root causes—on finding out why those strategic products are out of stock.
Focus on high demand, high margin products

With high demand products, the movement of the goods is generally well known and the forecast can be
more accurate. On shelf availability issues with constant high demand products can be addressed
through improved safety stocks, more effective backroom to shelf processes, and demand-based
planning tools. When efforts to reduce out of stocks for high demand, fast moving products are not
successful, value can still be realized by reducing the duration of the out of stock (which reduces lost
sales).
High demand items can be segmented into temporary high demand out of stock items and constant high
demand out of stock items. Your efforts to reduce out of stocks should focus on constant high demand
out of stock items.
A temporary out of stock situation for high demand items can be triggered by severe weather or
seasonality, contamination of food products, viral outbreaks in livestock, labor strikes, plant fires, and so
on. There is little you can do to reduce temporary out of stocks. It is far more productive to concentrate
efforts instead on constant high demand products that are out of stock. Targeting constant high demand
products enables an organization to get the most return from out of stock reduction initiatives.
Selecting high demand, high margin products: ABC analysis

ABC analysis is a methodology used in materials management and inventory management. With this
approach, you can identify items that have the biggest impact on overall inventory or operations. The
outcome of the ABC analysis is a list of high impact, high demand products that would justify the
investment in an on-shelf availability improvement project.
In the ABC analysis, the letter A can indicate the fastest-moving products, and C would indicate the
slowest-moving products. The products will also be coded 1, 2, 3, according to margin contribution with 1
being a high level of margin contribution, and 3 being a low level of margin contribution. Thus, A1
indicates a fast moving product with a high level of margin contribution, and an A3 is a fast moving
product that has a low level of margin contribution.
1. Measurement (continued): Identify Root Causes
"Product is not on the shelf" is not a root cause. Is it due to shelf replenishment? Inventory inaccuracy?
Store ordering practices? An effective improvement program digs down to the root of the problem and
focuses on a limited number of root causes. The limit could be based on which solutions would be easiest
to implement, which issues have the highest probability of being successfully addressed, and which
causes offer the best return on investment.
A good exercise to determine the root causes of on shelf availability issues is to identify causes that
require a change in behavior from a trading partner. This simple exercise will reveal how essential
collaboration is to the improvement effort.
Root Cause Analysis: Fishbone Diagram

There are tools you can use to identify underlying causes of on shelf availability issues. Perhaps the most
useful is the fishbone (Ishikawa diagram), commonly used to dig down to the bare bones—the root
causes—of issues. The fishbone diagram approach forces participants to think through how issues are
related and helps them to see the best methods for addressing the chief causal issues.
Root Cause Analysis: Site Visits
Few things provide a full understanding of causality and help you identify solutions as much as a site visit
does. A site visit may reveal a retail location on a crowded street corner with a small unloading lot for
trucks to park and no place for large trucks to park except in the street. Further investigation might reveal
that the retailer restricts large trucks from entering the property except at night, or that delivery companies
or distributors will only deliver to the location in the evening.
Site visits can reveal where the product or category is situated relative to the storeroom. If the stockers
start with shelves closet to the storeroom and work towards the front of the store, the shelves near the
front are the last to be serviced. Site visits may reveal storeroom handling practices that cause product
damage, forcing excessive returns, which lower the on shelf availability of high quality, undamaged
product.
Finally, site visits help you get a sense of the site’s personnel and culture. Such an understanding is
critical to developing strong, collaborative relationships.
1. Measurement (continued): Set Targets
Success in improving on-shelf availability will only be recognized and appreciated if there are agreed
upon metrics for determining when progress has been made and what constitutes progress. Practically
every business operation has targets or goals. But it is the tracking and reporting on the progress against
those targets that makes the targets meaningful and keeps the organization focused on achieving
meaningful results.
To establish targets it is critical that there is first a clear understanding of how the retailer metric (either
out of stock or on shelf availability) is defined [see sidebar]. Only after defining the metric is it appropriate
to look at past history and set targets.
Involve cross-functional teams

The targets should be developed—or at least confirmed—by cross-functional teams. Some of the targets
should be set in areas that require cross-functional participation to achieve the goals.
Targets – challenging but achievable

Targets that are too relaxed inspire no one and are quickly forgotten. Targets that are too ambitious
discourage participants. To keep targets challenging, they should be revised upward as progress is
made.
Target higher on shelf availability & lower monetary losses

To address out of stocks effectively, complementary targets can be set based on how high you want on
shelf availability to be and how much you want to reduce lost sales.
A monetary reduction target can be highly effective in focusing efforts to improve on shelf availability for
key fast moving products. Aiming to achieve a reduced amount of lost sales keeps the team focused on
high priority products.
Both retailers and manufacturers should develop incentive structures that encourage on-shelf
availability—particularly when on-shelf availability is measured in monetary volume from high margin, fast
moving products. The right incentive structure might encourage retailers to reallocate shelf space away
from slow moving products to fast moving products, or to allow more frequent deliveries, or to welcome in-
store replenishment (merchandising) support by manufacturer’s representatives.
How Do You Define "Out of Stock"?

Targets must link to the retailer’s definition of out of stock or
on shelf availability. One retailer may indicate out of stock
S (or no on shelf availability) if the point of sale data indicates
I the last item on the shelf was sold, even if new stock is
D replenished on the shelves within the hour. However,
E another retailer may not consider product to be out of stock
B or not on the shelf if it is replenished any time during the 24-
A hour period. In these instances, both could be showing a 5
R percent rate of product not being on the shelf, but at very
different levels of product unavailability. Thus,
understanding how out of stock or poor on-shelf availability
is defined is essential.
1. Measurement (continued): Establish Continuous Improvement Process
The retail environment is one that evolves rapidly. The evolution is so rapid that the focus on on-shelf
availability can quickly change. Many retailers carry between 10,000 and 50,000 items. The sheer
magnitude of items carried demonstrates the importance of having on shelf availability initiatives
institutionalized and regularly monitored lest any short-term gains that are realized evaporate over time.
Therefore, it is important to make on shelf availability management and measurement a continuous
improvement process.
Continuous improvement plan

A plan should be developed, jointly between the manufacturer and retailer if possible, to address on-shelf
availability issues. The plan should identify initiatives to find solutions to the high priority root causes.
The plan will often be divided into 30, 90, 180, and 360 day performance periods. Within 30 days, a few
quick wins—maximum value in the minimum timeframe—should be planned. Likewise, there are
initiatives that may take three to six months to implement. Some of the more complex initiatives may take
up to a year to implement.
A plan will only be successful if it has clearly defined roles and clear ownership for given activities.
Owners should be identified who will own the implementation of the plans. And regular sessions should
be scheduled to assess progress and take corrective action.
Keeping the heat on

A continuous improvement process will keep the focus on reaching (and ratcheting up) targets.
Otherwise, busy employees will lose sight of why they measure on shelf availability or out of stock rates,
and treat it as a data collection exercise for management. To remain relevant, the targets need to be
monitored continually and revised as appropriate. This means regular sessions in which on shelf
availability measures and targets are monitored and reviewed and ongoing improvements are made.
This feedback loop about what works well and what does not is important. It stops the organization focus
from shifting their focus elsewhere once a few improvements have been realized. Without this constant
attention, on shelf availability could quickly regress to prior levels.
2. Management Attention
Improving on shelf availability calls for involvement from everyone from executives to operators, pickers,
and stockers. Most importantly, management must commit before any improvement efforts can begin.
Attention from management can have an immediate, positive effect. In the ECR study, in dozens of
companies, just from week 1 to week 2—basically, just because management "said so"—out of stock
counts were lower (on average) by 1 percent.
Devoting resources: The cross-functional team

Because the issue of poor on-shelf availability spans multiple functions, it is best addressed by a cross-
functional team. There can be communication challenges internally among Sales, Marketing, Production,
Fulfillment, and Finance. If each of these functions has representatives on the cross-functional team, it is
more likely to identify the real root causes in a way that engenders buy-in from the whole organization. A
diverse team is also more likely to propose (and implement) workable solutions.
Perhaps more importantly, it takes a cross-functional team to collaborate with trading partners. In fact,
adding supply chain partners to the cross-functional team can help you close the communication gaps
between your organizations and fix/align the processes that cause out of stocks. On shelf availability
benefits manufacturers, retailers, and distributors, so it is in the economic interest of all parties to improve
on shelf availability, either as participating team members or by giving the team access and time.
Committing to a cross-functional team

Most people are most comfortable in their home organizations and cultures. The gravitational pull to focus
inward is strong. That is why collaboration must be a deliberate, planned effort. Otherwise, it is not likely
to happen.
This is where management can show its commitment to improving on shelf availability—by freeing up at
least some key resources to work full time. One of the biggest gripes cross-functional team leaders have
is their team members have no formal accountability to them: team members report only indirectly, and
still have all their regular responsibilities to worry about. That is a recipe for half-baked improvements.
Setting Up & Aligning Incentives

Incentive alignment assures that store and supply chain personnel work in concert toward the same goal:
optimal on shelf availability. This requires a cultural change in incentive alignment. Comprehensive
incentive programs should involve not just store associates (which you would expect), but also others in
the supply chain: for instance, a retailer's corporate buyers, planners, and transportation and warehousing
personnel.
Strategy alignment
By setting challenging targets, aligning incentives to the targets, and controlling the
replenishment process, you can change employee attitudes toward on shelf availability.
Case in point: if store managers are penalized for high inventory, they might reduce
stocks even in the face out of stocks. However, if they get rewarded for improving on
shelf availability rates, they would try to eliminate out of stocks.
Functional alignment
Incentives for different functions must not conflict. Retail organizations sometimes force
this conflict on their corporate buyers and retail store managers. Buyers may ignore
things like brand appeal, pack quantities, and shipment quantities—things that are
important to the retail store manager because they affect on shelf availability and the
retail store manager's rewards. What if buyers were rewarded for lowering costs? They
might base their purchasing decisions on factors such as total landed cost, where
transportation costs are lower, but—bigger, less frequent shipments harm on shelf
availability. Or, buyers might lower costs by arranging deep discounts, requiring a bulk
purchase of a three- to six-month quantity. This type of batch ordering disrupts the
smooth flow of product to the shelves, and harms on shelf availability.
3. Replenishment System
Having a timely, smooth, consumer-driven replenishment system is a superb way to improve on shelf
availability. That means doing a better job of assortment planning and shelf allocation. Since
manufacturers cannot (for the most part) control how retailers perform these tasks, their challenge is to
understand the issues so they can make a business case for practices that benefit both parties.
Issue: Fast-moving products don't get enough shelf space

With growing assortments of products and the proliferation of product categories, most stores tend to
allocate too little shelf space for the fast moving products and too much shelf space for the slow moving
products. Most retailers allocate about 25 to 40 percent of their shelf space to slow moving products.
Ninety-one percent of SKUs are allocated shelf space based on case pack size (rather than on demand
or lost sales from out of stocks) and 86 percent of the inventory on shelves represents more than a
seven-day supply (slow moving).
Manufacturers whose products occupy a lot of shelf space, or outsell other products, may find some of
that space allocated to new products. From the retailer's point of view, the space allocated to some
products is already small, and cannot be reduced any further. Their space to grow is limited. Therefore,
retailers tend to target a product category with a lot of shelf space for reduction. Or, to slightly reduce the
allocation of shelf space to fast moving products so that room can be made for new or derivative
products.
Issue: New products squeeze out fast-moving products

When a retailer plans shelf space for a new product, the tendency is not for the retailer to eliminate an
existing (slow moving?) product, but instead to squeeze the new product onto existing shelf space. The
shelf space for the new product usually comes at the expense of a fast moving product.
Manufacturers face an even worse scenario when they introduce a derivative product. For instance,
mustard in a pop-top squeezable container is a derivative of the old standby—mustard in glass jars with
twist-on caps. Many retailers will simply put the new mustard product into the manufacturer's existing
space and reduce the space allocated to the mustard in glass jars.
This practice—reducing rather than reallocating shelf space—cannibalizes sales of existing products.
Overall sales may still rise, but not at the rate manufacturers would expect with the introduction of a new
product.
Business case: Manufacturers justify shelf allocations for fast-moving products
In a crowded shelf environment, all this can mean that fast moving items get crowded out, and that is
exactly what happens: fast moving items have six times the level of lost sales as their slow moving
counterparts (Gruen and Corsten 2007).
This clearly makes a strong case for getting shelf space reallocated to the faster moving items.
Manufacturers could present a business case based on lost sales, showing their effect on the retailer. Or,
the manufacturer could suggest a plan for shelf allocation, showing how new products would fit on
existing shelf space. For instance, using a planogram makes it easy for the retailer's stockers to stock the
shelves exactly the way the manufacturer wants them.
Example: If you walk the soup aisle in your local hypermarket, you can see how inventive manufacturers
are when it comes to protecting their allotted shelf space. Shelf inserts clearly name the numerous SKUs
(consumer-driven) and provide an easy way for stockers to keep shelves full of the right SKUs (timely and
smooth). At the same time, the shelf inserts physically claim an amount of shelf space that cannot be
reallocated to a competitor.
4. Merchandising
Merchandising is the practice of making products available to consumers, mainly by stocking shelves and
displays. Improving the timeliness and accuracy of the practice will improve on shelf availability.
A clear policy
A retailer needs a clear merchandising policy. With thousands of products introduced annually, the store
floor and the backroom would be chaos without a clear policy—including product or category
planograms—on when and how shelves and displays will be stocked.
Who, when, & how

Merchandising used to be done by the retailer. Today, it is much more likely to be done by the
manufacturer (or a supplier representative, like a distributor) when the product is delivered (especially at
grocery stores). This puts the responsibility for following the planogram on the manufacturer. And, it gives
the merchandising personnel from the manufacturer real time visibility into on shelf availability.
5. Inventory Accuracy
Maximizing on shelf availability requires excellence in a number of operational capabilities. The most
critical one—the one that will have the greatest effect on on-shelf availability—is inventory accuracy:
Focus on accuracy
If the only reasonably accurate data that a retailer possesses is its point of sales store data, it will be
difficult to estimate demand accurately. Inaccurate data from sloppy data recording or data entry practices
or from inconsistencies within the organization make it difficult to build predictive models. Planning,
ordering, and inventory replenishment models are built on the underlying assumption that the data in the
inventory records is accurate. Inaccurate data always leads to inaccurate results from mathematical
models—garbage in, garbage out.
Advanced technology-based solutions have emerged that automate out of stock measurement and
detection. However, inventory accuracy usually comes down to the human factor—to having trained
personnel at the retailer, manufacturer, and distributor who are motivated to record and enter data
accurately.
Improving on shelf availability

Well-managed inventory is rarely out of stock. Surprisingly, though, higher supply chain inventory levels
actually correlate with higher, not lower, out of stock rates (Gruen and Corsten 2007). This apparent
paradox may be explained by the fact that retailers with lower inventory levels tend to manage their
supply chains better and have their inventories in the right places. Having high levels of inventory that is
misallocated to the wrong stores, geographies, or regions does not translate into higher in-stock levels. It
simply means more inventory is misaligned with demand and out of stock levels will remain high.
So, if the answer to out of stock is not to simply pack the supply chain full of inventory, what is the
answer? Effective inventory control almost always requires close coordination between retailer and
manufacturer (supplier). Retailers and manufacturer can work together to reduce total supply chain
inventory and improve customer service—by maintaining high in stock and on shelf availability levels.
Technology Takes on Inventory Accuracy — RFID

Radio-frequency identification (RFID) is increasingly prevalent in the retail sector. In some cases, RFID
tags can be read from several meters away. Such tags help the retailer know when product has been
received or moved to the shelves. And, while RFID has been used primarily to track pallets, emerging
technologies are using RFID to track beyond the pallet to the shelf edge and the retail store door.
Technology Takes on Inventory Accuracy — Shelf-Edge Computing
A large grocery chain abandoned shelf-edge labels printed in the back office and applied manually—
requiring a walk back to the office and a walk back to the shelf if a label was wrong—for a solution
combining shelf-edge computing and mobile technology. They saw improvements not just in accuracy,
but also in timeliness and visibility of data:
• Improved data accuracy

• Improved and up-to-date information for the user
• Simplified user process
• Improved productivity with single data capture at shelf edge
• Real time capture and processing of information
Just one of the improvements (simplified user process) saved 15 in-store staff hours per store per week,
saving more than £3 million annually. Read more about it: Institute of Grocery Distribution 2004
Who Knows Your Data Better Than... Your

Supplier...?!
Many companies have an end of year reporting scramble
S
to determine purchase and spend activity, and this
I
process is marked by hasty calls to…the Finance guy?
D
The Accounting people? No, to suppliers' sales teams.
E
Sales associates keep accurate records. For a variety of
B
reasons (like incentive-structured bonuses), sales
A
information tends to be more accurate than ordering,
R
shipping, receiving, or inventory records. Yet, that
inaccurate ordering and inventory data are often the basis
for forecasting and replenishment models.
6. Promotional Management
Promotions sell lots of products, but out of stocks make lots of consumers unhappy. Improving the ways
promotions are managed will improve on shelf availability.
Promoted products are twice as likely as non-promoted products to be out of stock. Given that a higher
demand is anticipated due to the promotion, this problem should be fixable if the parties work together on
joint promotional activities.
Without collaboration, it is all too easy for a retailer to misjudge demand for an item and order an
insufficient quantity, causing out of stocks. A close collaboration between supply chain and marketing
groups ensures a more accurate forecast so an adequate supply is on hand to meet the expected
demand. The manufacturer and retailer should jointly plan and collaborate on promotional activities to
ensure the highest probability of success without excessive product shortages.
7. Ordering System
A better ordering system can improve on shelf availability. Retailers working aggressively with distributors
and manufacturers can reduce out of stocks using, for example, electronic ordering methods to break
large order quantities into smaller orders. Smaller orders increase order frequency, and enable mixed
truckloads—getting more of the right products on the shelf, faster.
More frequent orders

To minimize transaction costs and reduce transaction time, retailers typically batch orders. They order on
a weekly, monthly, or quarterly basis (depending on how fast the product moves). Manufacturers go along
with this approach, even though batching orders disrupts the flow of product to the shelf, harming on shelf
availability. Neither party wants the burden of daily orders, although this would provide the best picture of
real-time demand.
It is more challenging—and it can be more costly—to plan for and ship orders that vary in size and are
more frequent. Tools such as EDI and the Internet and planning and replenishment activities based on
point of sales data allow retailers to increase their ordering frequency. Electronic tools make it easier to
plan mixed truckloads and set up frequent delivery schedules. So, instead of a manufacturer or distributor
shipping a full truckload of soup to one store, the manufacturer ships a mixed truckload of products—
including pallets of soup, deodorant, shampoo, and facial tissue—more frequently, or based on actual
demand.
To support smaller orders, retailers and manufacturers have to work together to develop minimum pack
sizes and set up delivery schedules.
Automatic ordering
Automatic ordering is based on sales: replenishment is triggered when sales reach a certain level based
on, for example, allocated space, minimum fill rates, and point of sale data.
Automatic ordering allows more flexibility and integrates real demand into the ordering process. With so
many SKUs, it becomes impossible to order manually and stay ahead of demand. Some systems are so
sophisticated they integrate human knowledge—a big snowstorm is coming—to trigger orders.
A best practice is to combine automated ordering with EDI, the Internet, or a real-time technology that
adjusts the order size based on projected sales volumes…and with order sizes structured to maximize
efficient case pack sizes and flow into the stockroom and shelves without dominating stockroom or
distribution center space.
Topic Summary
Improving on-shelf availability requires an integrated approach and collaboration between manufacturer
and retailer. In this topic, we focused on seven ways to improve on shelf availability.
The focus of any improvement effort should be on fast moving, high demand products. They are much
more likely to be out of stock than slow moving products, and they give you a chance for some quick,
visible wins.
Analytical approaches such as ABC analysis and the use of a fishbone diagram help an organization
determine where to allocate resources to address root causes of on-shelf problems.
Improving on shelf availability requires a focus on continuous improvement given the dynamic retail
environment.
CONCLUSION
Course Summary
On shelf availability is a critical component of the sales process. It is important to understand that no
matter how effective the supply chain, the product must move the last 50 meters to the retailer’s shelf,
and must be constantly available for the consumer if the benefits of upstream supply chain performance
are to be realized.
But having high levels of on shelf availability is more challenging than it would seem at first glance. High
levels of on shelf availability require the right allocation of shelf space and excellence in storeroom
operations as well as good planning, ordering, and replenishment practices. These efforts must be
conducted in a coordinated fashion with input from a number of business functions and from trading
partners. But it is worth the effort when balanced against the risk of poor on shelf availability: that the
retailer and/or the manufacturer could lose sales and brand allegiance as the consumer shops elsewhere,
chooses another brand, or cancels the purchase. Thus, both the retailer and manufacturer have
significant incentive to reach high levels of on shelf availability.
The approach to improving on shelf availability is an analytical and collaborative one. Performance is
improved when the focus is on products that contribute the highest margin and move the fastest, and
when there is an analysis to determine the root causes of poor on shelf availability. Performance can be
improved through collaborative, cross-functional efforts that have aligned incentives. And the work is not
over once a performance improvement is realized—the efforts must continue, through careful monitoring,
to ensure no regression in performance. While this is a challenging business problem, the efforts are
justified given the lost sales and diminished brand loyalty that occur when the desired product is not on
the shelf.
References
Campo, K., E. Gijsbrechts, and P. Nisol. 2000. Towards understanding consumer response to stock-outs.
Journal of Retailing. Vol. 76, No. 2, 219-42.
ECR Europe. 2003. Optimal shelf availability. Increasing shopper satisfaction at the moment of truth.
http://ecr-institute.org/publications/best-practices/optimal-shelf-availability/ accessed August 12, 2008.
Grocery Manufacturers of America. 2002. Full-shelf satisfaction – reducing out-of-stocks in the grocery
channel. GMA's Direct Store Delivery Committee.
Gruen, Thomas W., and Daniel Corsten. 2007. A comprehensive guide to retail out-of-stock reduction in
the fast-moving consumer goods industry. Procter & Gamble research study.
Gruen, Thomas W., and Daniel Corsten. 2003. Desperately seeking shelf availability: An examination of
the extent, the causes, and the efforts to address retail out-of-stocks. International Journal of Retail &
Distribution Management. Vol. 31, No. 12, 605-617.
Gruen, Thomas W., Daniel Corsten, and Sundar Bharadwaj. 2002. Retail out of stocks: A worldwide
examination of extent, causes and consumer responses. Grocery Manufacturers of America: Washington,
DC.
IGD (Institute of Grocery Distribution). 2004. ECR Availability – A UK perspective.

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On Shelf Availability

"In stock" essential to being competitive

Consumers have more options via the Internet

• Process complexity (from SKU proliferation)

Undetected Shift in Consumer Demand

Peak Demand vs. Average Demand

Out of Stock by Day of Week

Poor Shelf Management

Insufficient Shelf Space Allocation

Lack of Adequate Signal to Management

Poor Inventory Handling Procedures

Poorly Designed Packaging

Poor ordering practices cause out of stocks.

Ordering Too Little or Too Much

Uncoordinated Promotional Activities

Warehouse/Distributor Practices That Cause Out of Stocks

Manufacturer Practices That Cause Out of Stocks

Unsophisticated supply chain

Warehouse / Distributor & Manufacturer Practices: Substitution of Orders

Defining "out of stock"

• Product is not in the store's backroom or stockroom, or…

Reducing out of stocks improves "availability"

From the same measure, different implications

Focus on high demand, high margin products

Selecting high demand, high margin products: ABC analysis

Root Cause Analysis: Fishbone Diagram

Involve cross-functional teams

Targets – challenging but achievable

Target higher on shelf availability & lower monetary losses

How Do You Define "Out of Stock"?

Continuous improvement plan

Keeping the heat on

Devoting resources: The cross-functional team

Committing to a cross-functional team

Setting Up & Aligning Incentives

Issue: Fast-moving products don't get enough shelf space

Issue: New products squeeze out fast-moving products

Who, when, & how

Improving on shelf availability

Technology Takes on Inventory Accuracy — RFID

• Improved data accuracy

Who Knows Your Data Better Than... Your

More frequent orders

IGD (Institute of Grocery Distribution). 2004. ECR Availability – A UK perspective.

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