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Ehrenthal 2013
Ehrenthal 2013
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IJPDLM
43,1 An examination of the causes for
retail stockouts
Joachim C.F. Ehrenthal and Wolfgang Stölzle
54 Chair of Logistics Management, University of St Gallen, St Gallen, Switzerland
1. Introduction
Stockouts are a persistent problem in retailing (Grewal and Levy, 2007). On a global
average, 8.3 percent of retail items are not available on the shelves (Gruen and Corsten,
2008). Despite the initiatives designed to improve the collaboration of retailers and
their suppliers, such as efficient consumer response (ECR)[1] and despite the increasing
use of new technologies such as radio-frequency identification (RFID) and
point-of-sales data analytics, this situation has improved little over the past decades
(Aastrup and Kotzab, 2010).
Stockouts have a direct impact on retailer financial performance, because they lead
to lost sales when shoppers decide to purchase some items elsewhere or to cancel their
shopping trip altogether. Immediate sales losses due to stockouts are estimated at
4 percent of sales (Gruen et al., 2002), which is about the same as the average 5 percent
International Journal of Physical of sales retailers spend on logistics (Sivakumar, 2010). Over time, frequent stockouts
Distribution & Logistics Management are known to diminish the store and brand loyalty of shoppers, and consequentially
Vol. 43 No. 1, 2013
pp. 54-69 jeopardize future sales (Zinn and Liu, 2008). Further, stockouts reduce profits through a
q Emerald Group Publishing Limited wide array of operational issues which are difficult to measure in terms of costs, and
0960-0035
DOI 10.1108/09600031311293255 seldom reported (Zipkin, 2000). Examples include store staff attending shoppers who
cannot find an out of stock item and deficient forecasts based on sales data distorted by Causes for retail
stockouts and shopper substituting behaviour. Reducing stockouts, therefore,
represents retailers with the opportunity of increasing sales and reducing cost.
stockouts
However, this also requires a detailed understanding of the causes for stockouts.
Recent surveys suggest that most retail stockouts are caused in the store. Following
the seminal work by Gruen et al. (2002), several studies have highlighted the potential
of improving store operations for the purpose of decreasing retail stockouts. The 55
studies report up to 98 percent of stockouts to be caused by defective shelf
replenishment practices, and far less being caused in the upstream supply chain, such
as a shortage of supply from a brand manufacturer (Aastrup and Kotzab, 2009
(98 percent); Gruen et al., 2002 (72 percent)). In their comprehensive review of the past
40 years of retail stockout research, Aastrup and Kotzab (2010, p. 158) conclude that:
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[. . .] the problem of causes originating at the store-level is well known but no changes can be
observed in that matter. [. . .] The retail supply chain up to the store has been the focus during
the last decades and has been significantly optimized [. . .], a logical next step would be to
include and emphasize the in-store logistics or store operations in the analysis of retail supply
chains.
This study thus aims at contributing to the literature by detailing the factors which can
lead to retail stockouts with a particular focus on store operations. Inspired by Vargo
and Lusch (2004), it takes on a service-dominant (S-D) logic view of retail stockouts, in
which the timely interaction of retailer and supplier resources to enable the creation of
value through on-shelf availability. In this view, the retail store links the logistical
activities of the retail supply chain and those of the shopper, who can then go on to use
the value embedded in the physical goods as desired. In the case of stockouts, value
creation is obstructed or prohibited.
We apply Creswell’s (2009) mixed methods approach of collecting, analysing and
corroborating both quantitative and qualitative research within a single study, as well
as investigating the long-term effects of operational improvements in a two years field
study (Bryman, 2006; Creswell and Plano Clark, 2006). We contribute to the literature
by providing a comprehensive list of the causes for retail stockouts, conducting a
longitudinal study on the causes for retail stockouts as well as calling for research into
several issues concerning retail stockouts that were previously overlooked.
The remainder of this paper is organized as follows. First, we review the literature
on retail stockouts. Second, we provide a methodology section describing the research
design, data collection, and analysis in detailing the causes for retail stockouts with
special reference to store operations. Third, we report the observations from a
interviews, observations and a two years field study, which tracks causes for stockouts
for one European retailer as well as action steps taken towards stockout reduction.
Finally, we discuss our findings and conclude with opportunities for further research.
2. Literature
2.1 Shopper response to retail stockouts
Retail stockouts, i.e. items not shelved as intended, frustrate shoppers and force them
to take a number of corrective actions that are beyond the retailer’s control.
Understanding how shoppers respond to stockouts is therefore the starting point for
retailers to improve on-shelf availability (Rajaram and Tang, 2001). When shoppers are
unable to find an item that they had intended to purchase, they might switch stores,
IJPDLM purchase substitute items (brand switch, size switch, category switch), postpone their
43,1 purchase or decide not to buy the item at all (Campo et al., 2003). Although these
responses differ in severity, each entails negative consequences for retailers. Stockouts
cause lost sales, dissatisfy shoppers, diminish store loyalty, jeopardize marketing
efforts, and obstruct sales planning, because substitution disguises true demand.
Moreover, shopper surveys reveal stockouts to currently be the most prevalent
56 annoyance to shoppers (EFMI, 2008). Shoppers spend a considerable amount of time
looking for and asking for non-available items, which disrupts the shopping experience
and ties down store staff resources.
Shopper response to stockouts has been investigated with respect to cognitive
response (e.g. perceived availability), affective response (e.g. store satisfaction),
behavioural response (e.g. brand switching) and aggregated response in terms of
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From Gruen and Corsten (2008), McKinnon et al. (2007), Fernie and Grant (2008) and
Aastrup and Kotzab (2009), we collate the following synthesis of causes for retail
stockouts. We follow Aastrup and Kotzab (2010)’s retail reference model from supplier
order, warehouse delivery, cross-docking, store delivery and store shelf replenishment
processes. In the downstream order of occurrence along the retail supply chain,
starting with first tier suppliers, the main reasons for stockouts identified are as
follows. The causal categories, as collated and re-organized from the aforementioned
studies on retail stockouts serve as a basis for the remainder of this study:
.
Prestore causes are related to direct suppliers or the retailer’s distribution centre.
Direct suppliers may have fulfilment problems or delivery problems on their way
to the retailer. These may occur due to general planning and communications, for
instance for promotions. Two causal categories are related to the retailer’s central
warehouse: general warehousing and forecasting problems, such as picking
errors and system forecast errors, respectively, and ordering problems due to
inaccurate inventory, for instance. Another prestore cause for stockouts may be
unreliable transportation, such as delays caused by congested roads.
.
The instore categories of causes for stockouts include listing problems and store
ordering problems, such as erroneous manual adjustments to system orders,
followed by delivery problems from the distribution centre. Problems with
incoming goods cover deficits during the process of delivery at the store ramps,
including item damage. Store inventory problems, such as inventory-keeping,
placement problems and replenishment problems reflect the process of moving
items from the back-store to the correct space on the retail shelf. The last causal
category captures promotion-caused stockouts in the stores.
Several methods have been developed to identify and track stockouts. Generally, there
exist four methods (Gruen and Corsten, 2008). The traditional method is to manually
look for “gaps” on the shelves (Gruen et al., 2002). Fisher et al. (2000) refer to this
practice as the zero balance walk. A second method makes use of point-of-sale data or,
more specifically, scanner data. Based upon historical sales data, the latency period
between sales is taken as a gauge of whether an item is on the shelf. Stockouts may also
be identified by using inventory data. Finally, various types of technology, such as
RFID, shelf stoppers and weight or light sensors, can be used (Delen et al., 2007; Hofer,
2009).
IJPDLM While the zero balance walk incurs labor cost, it is most useful for adding an analysis
43,1 for the causes of each stockout. If not already in place, the introduction of RFID for the
sole purpose of stockout monitoring seems unlikely for cost reasons (Wu et al., 2005).
Using scanner and inventory data to observe stockouts relies heavily on accurate
data and commonly exhibits robust results for fast-selling products only
(Papakiriakopoulos et al., 2009). As a consequence, stockouts for slow-selling items
58 remain undetected or are detected belatedly. Using inventory data entails the problem of
low levels of accuracy in the retailing context. Studies report inventory accuracy in a
retail setting to be below 50 percent (Kang and Gershwin, 2005). In a recent examination
of 370,000 inventory records from 37 stores of one retailer, DeHoratius and Raman (2008)
find 65 percent to be inaccurate. Also, inventory data may be inaccurate as to the location
of the item in the store and its condition, making the causes for stockouts hard to identify
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(Gruen and Corsten, 2008). Above all, all technologically advanced methods for detecting
stockouts are ill suited to simultaneously identify the causes for stockouts.
As a consequence, the zero balance walk is the most suitable method for identifying
stockouts and investigating their causes. However, due to differing sales velocities and
replenishment schedules, the effectiveness of manual stockout audits depends heavily
on their frequency and timing, and on avoiding human counting errors (Gruen et al.,
2002). In addition, in order to avoid distorting the stockout data through conflicting
interests, the staff performing the audits should be independent as not to be influenced
by store management that may have an incentive to perform well in such audits
(Fernie and Grant, 2008). Some categories are prone to more stockouts because of their
logistical requirements or demand structure (McKinnon et al., 2007). Thus, product
categories with high demand uncertainty (due to impulse purchases, seasonality
effects, promotions) as well as those products with special requirements, such as
cooling, need to be taken into account when investigating the causes for stockouts
(Fernie and Grant, 2008).
included workshops and interviews with company executives, supply chain managers
and store management, as typical elements of field study research.
The retailer was interested in analysing the reasons for stockouts, as it had recently
introduced a new automated store ordering system. Despite the system’s robust
ordering results compared to manual store ordering, stockouts occurred frequently and
customers complained. While the researchers participated in meetings and discussed
our findings with company executives, the researchers were not actively involved in
the decision-making process. The researchers’ role was to provide knowledge,
methodology and independent data analysis.
The field studies were carried out as follows. Together, with retail management, the
stores and items for investigation were selected. The stores were selected as to represent
a newly built store, a renovated store, an older store and one store with two floor levels.
A representative sample of items was selected as to cover the 20 percent highest selling
items by revenue for each category. In addition, the items under investigation were
those equipped with a barcode to be able to cross-check findings with system data. This
meant dropping several items, in the produce category. The resulting sample sizes were
495, 490, 493 and 473 items per day. The sample size differs due to de-listings over the
two years period. To avoid distortion in our results, sample-size effects were controlled
in the analysis. In addition to detecting stockouts, if fewer than six units of a sample
item were on the shelf, the current inventory level was noted.
Prior to the audits, staff was trained to identify stockouts and complete relevant
documentation, and educated in identifying causes for stockouts with store managers
in structured interviews, resulting in the identification of a unique cause for each
stockout. A stockout was noted if an item’s predefined and labelled shelf space was
empty, the item was not ready or fit for sale (damaged, etc.), or it was difficult to grasp
or hidden (e.g. blocked by roll cages). Independent staff carried out the first two audits,
while the retailer’s inventory control staff carried out the remaining audits. No
systematic errors in stockout detection were observed in several unannounced on-site
visits to monitor all audit staff. Store managers were aware of the presence of the audit
teams, but store staff was not informed as to the exact purpose of the audit in order to
prevent deviations from standard practice.
Following each audit day, the audit staff interviewed store managers to assign a
cause to each individual stockout. Audit staff documented the interview results and
passed them on to headquarters every night to prevent loss of data. The information
on stockouts and their causes was then aggregated and analyzed each night.
Store managements’ assessments of causes were validated at the retailers’ Causes for retail
headquarters. For instance, if a stockout was attributed to the cause “no delivery by stockouts
supplier”, this information was cross-checked with receipt of goods information at the
distribution center. The store manager’s assessment was altered if necessary. Further,
headquarters examined store ordering for anomalies during the audits that might have
occurred from advancing shipments or increasing order quantities.
Audits were carried out over two weeks in order to capture day-of-the-week 61
effects. The first two audits lasted 14 consecutive working days, and the subsequent
audits lasted 12 days, i.e. two weeks, with the stores being closed on Sundays.
Sufficiently consistent patterns of stockouts were identified after 12 days. This
yielded a total of 61,119 observations, more than 6,000 observation points per store
and audit. The audits were scheduled well after major replenishments and at a time
of day where the store sees less customer traffic as to prevent disruptions to
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shoppers. The audit time was 1-3 p.m., since store sales usually peak around 12 p.m.,
with substantially fewer customers shopping after 3 p.m. Table I summarizes the
process of preparing the audits, carrying out the audits, and changing behaviour
according to the results.
The result was a list of all stockouts per item and their causes during a specific day.
During the audits, several action steps were taken by the retailer to eliminate the
causes for stockouts. These are reported in the results section.
3.2 Results
In the interviews and field visits, we find that the causes for stockouts are specific to
retailer, store, category and item. The causes identified at the store-level include issues
with listing, ordering, delivery, handling, shelf replenishment, placement, and dealing
with promotions. At the level of the retail distribution center and with direct suppliers,
the causes identified were related to delivery, ordering, and handling, the latter not
applying to direct suppliers.
Table II provides a detailed list of the causes for stockouts as identified in the
interviews and field visits, building on the more general findings collated from the
literature in Section 2.2. The issues marked with an asterisk refer to causes that may
occur in automated store ordering as well as manual adjustments therein. For instance,
an order may not be placed because of an ordering system failure or because the order
Store Listing Item not listed or delisted; item re-launch; error in master dataa
Ordering Inaccurate inventory management; no order placeda; late ordera; wrong
quantity ordera; minimum order quantity not meta; minimum order
value not meta; inaccurate forecast of standard itemsa; inaccurate
62 system reorder level; order transmission problemsa; manual ordering
mistake, such as transposed digits; ordering system error; miscellaneous
other problems
Delivery Item not delivered; inaccurate consignment; delivery delay; delivery of
wrong quantities; item damage during delivery; wrong item
arrangement on pallets
Receipt Ramps occupied; wrong shipment received; poor quality shipment
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implementation lies within the company’s control. The instore staffs, who were
previously assigned jobs on a weekly basis, were divided into logistics and sales staff.
Replenishment and return activities were bundled according to assortment and
scheduled on a monthly basis, according to three category zones within each market.
Each zone was replenished, and received special attention (e.g. check-ups) by the store
logistics staff on predefined days of the week. Sales staff was exempt from logistics
activities, so that they could concentrate on advising customers and operating checkouts.
The goal was to improve the flow of goods and simplify tasks for store personnel.
The aim of the second project was to target prestore causes for stockouts,
specifically fulfilment problems by direct suppliers. Since this mostly concerned
delivery times of direct shipments that did not match store replenishment schedules,
new order and delivery cycles were established to enable more timely fulfilment.
70 suppliers collaborated and agreed to make the desired changes to their delivery
schedules. In tandem, the wholesaler’s distribution centre changed deliveries to match
store-specific shelf replenishment. About 90 percent of the store’s inventory now
arrives just before a predefined zone is to be replenished.
Directly after implementing the aforementioned projects, in the summer of 2008, the
stockout rates in the store increased from 2.15 to 2.41 percent. The stockout rates
increased in the categories of fresh food (þ 0.6 percent), food (þ 0.8 percent) and
near-food (þ 0.5 percent), but decreased in the non-food category (2 1.5 percent). The
stockout rates peaked on Tuesday (3.3 percent), but remained between 2 and 2.2 percent
for the rest of the week. The increase in stockouts appeared due to store management
issues; most stockouts are caused by deficient manual store ordering (66.2 percent).
Project implementation, however, was successful. Fulfilment problems ceased to
induce stockouts and shelf replenishment problems were reduced to 10.6 percent.
Half a year on, in early 2009, the average stockout level in the store was 1.81 percent.
Again, non-food (3.3 percent) and fresh products (2.33 percent) were more often out of
stock than the other categories. On Mondays, the stockout rates were slightly higher
(2.63 percent), and on Tuesdays and Wednesdays (1.3-1.4 percent) they fell, which
reflects both the demand cycle over the week as well as the fact that there are no
deliveries on Sundays. The causal category to which most stockouts could be
attributed to was deficient store ordering (43 percent), followed by replenishment
problems (23 percent).
In late 2009, the average rate of stockouts dropped from 1.81 to 0.98 percent.
Specifically, the stockouts declined in all four product categories: fresh food
IJPDLM (2 2.17 percent), food (2 0.62 percent), near-food (2 0.22 percent) and non-food
43,1 (2 1.79 percent). However, the stockouts still peaked on Mondays (2.31 percent), though
they fell sharply for the rest of the week.
store delivery and shelf replenishment are most effective for improving on-shelf
availability. Even for a retailer with a sophisticated store ordering system and data
warehouse, manual stockout audits provided useful in lowering stockout levels over a
period of two years. From the field study, we identify store organization, and the
coordinating store delivery and shelf replenishment as key drivers for reducing
stockout levels. The retailer takes on the role as the prime resource integrator, with
the store being central to the improvement projects, and suppliers taking on the role
of supporting network partners and is treated by the retailer as an operand resource,
i.e. acted upon rather than actively involved in the value creation process.
We contribute to the literature in several ways. First, the knowledge of the logistical
causes for stockouts was extended by conducting instore observations and interviews.
Only by determining the precise extent of stockouts in the store and understanding the
deficits in the supply chain, can retailers successfully reduce stockout levels. Previously,
research in this area has largely been conceptual in nature and stockout levels and
stockout causes have been studied independently. Further, previous studies provided
snapshots of three- to four-day observations and interviews (Fernie and Grant, 2008;
Aastrup and Kotzab, 2009). This is in contrast to the marketing research on shopper
response to stockouts. For instance, Zinn and Liu (2008) conduct repeat interviews with
shoppers 30 days after stockout incidents to compare purchase intent and actual
behaviour, accounting for stockout encounters in between interviews. Paralleling the
efforts in marketing research to investigate long-run effects of stockouts on shopper
response, we studied the long-run effects of stockout monitoring and retail operations.
Second, we provide a procedure to help retailers to reduce stockouts. While previous
studies have contributed to understanding where in the supply chain stockouts occur,
research has not developed a procedure to reduce stockouts (Trautrims et al., 2009). For
validation, stockouts were studied across an entire assortment and over a period of two
years, which improves the generalizability of the results obtained. Manual audits
identify the extent of stockouts in the store and attribute a cause to each stockout. The
information gathered is triangulated, cross-checking for internal consistency with retail
data warehouse information. This research therefore adds new depth to the instore
causes and shows solution mechanisms, both on the store-level and in the supply chain.
However, the results of the research conducted here differ from previous research
with respect to the overall level of stockouts identified and stockouts caused by
promotions. In the field study, stockout levels are substantially lower than those of the
stockouts studied in other contexts (0.98 percent compared to a global average
of 8.3 percent). Similarly different, promotion-related causes for stockouts were Causes for retail
negligible. This is in contrast to several studies report to be up to twice the rate stockouts
compared to non-promoted items (Gruen and Corsten, 2008). This indicates that the
causes of stockouts are likely to be retailer and store-specific. Moreover, this research
also added evidence to the growing body of logistics research that derives in-depth
knowledge from a combination of quantitative and qualitative approaches to solving
persistent logistical problems (Aastrup and Halldorsson, 2008), and provides guidance 65
to researchers on conducting field studies at the retail-shelf level.
The results also have implications for the study of retail demand and retail supply
chains when using sales data. As starting points of supply chains, capturing customer
demand at the retail shelf is vital to demand and distribution management. Persistent
stockouts distort demand in an unobservable way. Reducing stockouts improves the
data accuracy within the supply chains. Acknowledging that stockouts are a persistent
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problem in retailing, and that retailing is the starting point of many supply chains,
researchers need to be aware of the logistical causes that may distort their data. Any
research using retail sales data may be prone to distortions due to stockouts. As
shown, these can in some cases not be observed from inventory systems or other
sources readily available to researchers. To account for this problem, researchers could
employ the procedure outlined to assess the extent to which the occurrence of stockouts
in their data distorts results. We are unaware of research testing their sales data for
stockout-based distortions. Developing a control measure for stockout-induced data
distortions may be a starting point for addressing this issue, and would benefit both
the marketing and operations disciplines. Besides, sufficient knowledge of the extent of
stockouts, this would include estimates of lost sales as well as estimates for
substitution behaviour and other effects, such as non-purchases of complementary
purchases and is subject to further research.
The research results have several implications for retail management. Most
importantly, they demonstrate that retailers can reduce stockouts to levels far below
the global average of 8.3 percent by focusing on item-level causes and store-level
solutions. The procedure presented here provides clear guidelines to managers on how
to identify stockouts and their causes. The resulting information allows retail
managers to prioritize their efforts at reducing stockouts. The procedure requires no
investment in technology and can be integrated into routine inventory checks at low
cost. The research indicates that:
.
identifying stockouts and their causes manually;
.
assigning clear logistics roles and responsibilities to store staff; and
.
scheduling deliveries for shelf replenishment leads to improvements in on-shelf
availability.
Our research has several limitations, which provide avenues for further research on
retail stockouts. First, a continuous set of data is not considered; this could be achieved
by incorporating automated techniques for stockout detection into our procedure
(Papakiriakopoulos et al., 2009). In a similar vein, comparative studies from other
retailers may add further insight into the role of the store in retail stockout management.
Second, the concern here is with mitigating stockouts, rather than finding optimal levels
of on-shelf availability. Instead of attempting to provide maximal on-shelf availability,
retail research could focus on providing on-shelf availability as justified by demand.
IJPDLM To date, such an approach has been used only in Lee (2004), who describes how a
43,1 Japanese retailer successfully adapts her assortment of goods during the day and
deliberately initiates a stockout when an item is low in demand. This shopper-focused
approach to supply-demand integration may be studied from a S-D logic perspective,
investigating the operational and cost impact of incorporating demand seasonality
in inventory control and shelf replenishment practices. Third, future research
66 could investigate why the global average of retail stockouts has remained constant
over the last 40 years (Aastrup and Kotzab, 2010). This research suggests that retailer
operant resources (e.g. stockout detection capabilities) and channel power (e.g. supplier
involvement) may play key roles in this stagnation.
Notes
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joachim.ehrenthal@unisg.ch
Professor Dr Wolfgang Stölzle is the Director of the Chair of Logistics Management at
the University of St Gallen, Switzerland since autumn 2004. He is also Director of the
extra-occupational diploma program in logistics management. His field of study contains
logistics, supply chain management, transportation management, controlling as well as
procurement management.
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