Out-Of-Stock (OOS) - the absence of a previously sold product in the outlet. The situation is OOS in the event that the SKU is missing completely, or its stock is less than the established minimum, as a rule, equal to the daily sales volume.
The 8.3% Out Of Stock level is the industry standard and is considered the average level. Average level does not mean good. After all, with this level of Out Of Stock, the buyer in the store will not be able to find 1 product out of 13 desired! The figure is frightening and leads to a loss of up to 4% of the goods-turnover in modern retail, as shown by studies conducted in the United States over the past 10 years. Tell me: times are changing, and the figure is decreasing due to modern technologies ... No. Unfortunately, at the moment there is 7-8% of the Out Of Stock level.
The impact of OOS goes far beyond the lost sales of a single SKU. Inefficient work with OOS directly affects the profitability of the store, and also reduces the impact of promotions on sales promotion. OOS creates a ripple effect, distorting demand and leading to inaccurate sales forecasts.
And the problems for retail chains do not end there. The seller's cost due to OOS also includes the time employees spend on satisfying buyers who ask about a specific OOS item. And where else is the emotional component of the issue: a dissatisfied customer who loses trust and loyalty to your brand.
In 31% of situations, a product that was not found in the store will be purchased in another store - which means - having an OOS problem, we push our customers to choose another store (our competitor's store). For a typical grocery store in the US, the cost of inefficient Out Of Stock is 780 Euros per week.
It is necessary to emphasize 3 types of OOS that affect the result of the store:
1. OOS of the distribution center - when the goods that are ordered by stores are constantly out of stock. Thus, regardless of the demand of the stores, it is not supplied by them and thus forms the problem of the availability of goods in the stores themselves.
2. OOS of the store - when the item is not physically in the store as a result of inaccuracies in forecasts or orders, ordering methods and delivery processes.
3. OOS shelves - when the product being sold is physically located somewhere in the store, but is not always available to the buyer, because it is somehow hidden from the buyer.
Let's take a quick look at the reasons that lead to OOS in modern retail. Practice shows that the causes of OOS may arise due to incorrect forecasts, problems in the work of the retailer or problems in the work of suppliers:
1. Errors or incorrect predictions:
– Errors in the prediction procedure.
– Incorrect balance data.
– Errors in the delivery schedule.
– Invalid product master data.
- Theft of goods.
– Damage to the goods in the process of movement within the trading enterprise.
2. Retailers' problems:
– Untimely replenishment of shelves.
– Removal of goods from the assortment by store employees.
– The human factor in the formation of the order.
– Inefficient distribution center operations.
3. Provider errors:
– Low level of service, i.e. the ratio of ordered to delivered.
– Lack of quality production forecasting.
– Insufficient production capacity with the active promotion of the brand on the market.
– Low quality of group packaging.
– The level of personnel of supplier companies.
Having clearly identified the existing OOS problem, the retailer urgently needs to take 3 simple measures that will help partially solve this problem:
1. Increase the order volume or frequency. Create an "insurance" stock for the most sold SKUs;
2. Revise and, if necessary, adjust the sales forecast;
3. Reduce the influence of the human factor: double-check the results of reports and audits (for example, when calculating an order, you got warehouse balances with “resorting”);
It is clear that work to reduce OOS in retail chains is ongoing and aggressive. But the experience of the most successful retail chains shows that in order to mitigate the negative effect of OOS on store efficiency, it is necessary to follow a 7-step program:
1. Measurements.
In world practice, there are two methods for measuring OOS - a physical audit and the use of sales data in electronic format. The physical audit method is easy to use, but it has a number of limitations, such as labor intensity and lack of operational information. The method of electronic measurement of OOS allows you to receive information quickly, directly from the cash registers, and prevent the occurrence of OOS at any time.
2. Attention management.
The problem of the lack of goods requires activity at all levels of the company, from management to employees of the trading floor.
In order to draw the attention of employees to the problem of the availability of goods in the store, management can provide them with additional incentives or include this issue in the assessment of the effectiveness of the key performance indicator (KPI).
3. Restocking system.
An inefficient restocking system can be caused by a number of reasons, such as insufficient time to replenish store shelves with goods, inefficient warehouse operations and the organization of the restocking process itself.
In this regard, one of the important methods for improving this process is to increase the frequency and optimize the schedule for the supply of goods, the organization of warehouse management.
4. Merchandising.
Organization of the display of goods in such a way that the replenishment of stocks occurs according to the so-called planograms of the display. The layout planogram takes into account not only the basic principles of category management, but also average daily sales. That is, the layout is organized once a day, as a rule, at night or in the morning, when the purchasing power is the lowest. In the future, the staff only replenishes the “washed” commodity items.
5. Accurate inventory data.
There are only a few ways to keep inventory accurate - to optimize the receipt of goods and to minimize errors in posting and maintaining the database. The second way is to constantly conduct inventories.
6. Management of promotions.
The main and time-consuming task is to predict buying activity. Often, managers do not make these forecasts very well, sometimes suppliers limit the quantity of promotional goods, especially in the categories of non-food products.
If you use the mechanism for returning unsold promotional goods and order them to the maximum, then in this case there is a danger of diverting personnel to work with returns that suppliers are reluctant to make.
7. System of orders.
This is the work of specialists from the logistics department, and assistant managers, and the employees of trade enterprises themselves. Often orders are formed by representatives of suppliers directly in the store, having access to the balance. The most important thing is that any of the chosen systems of re-ordering goods should not lead to either OOS or excess product balances.
Having many years of experience in working with retail chains, the SUMATUS team has created a software solution that will help combat OOS and, in many cases, reduce OOS by 30-40%, which will tremendously improve the performance of stores and retail chains.
Stock monitoring app from SUMATUS
• The “machine learning” algorithm analyzes the balance of each article in the warehouse every day (store, central warehouse).
• The program provides a list of items to managers that should be checked due to anomalies in inventory.
• Store employees also receive a specific list of problematic items to review.
Why choose our solution?
• The solution will help reduce the level of OOS by 15-25%
• The solution was created by professionals of the trading sector with 20 years of experience together with mathematicians.
• The solution saves time for management and store employees to track down problematic stocks.
• The solution helps to make more correct orders both manually and automatically. This is a great addition to the net ordering tools, the algorithm makes the work of the automatic net ordering tool more accurate.
• Integration of the solution into network systems is fast and simple.