Monitor, Measure and Manage to Prevent Store Out-of-Stocks

Image: Shelves lay empty at a Wonder Bread Hostess Bakery Outlet in GlendaleThe competitive retail business dictates that retailers must keep their shelves stocked to drive new sales and repeat business.

By Pate Pape, Contributing Editor

Problem: Controlling out-of-stock situations.
Solution: Using smarter technology systems can keep items on the shelves.

Back before the widespread use of POS technology, managers of Flash Foods convenience stores would regularly walk the floors looking for glaring holes on store shelves. They used their skills of observation, plus a pencil and paper, to manage their inventories, place orders and keep customers satisfied.

By 2008, Waycross, Ga.-based Flash Foods Inc. had rolled out a POS system to all outlets, and management decided to use it to help tackle the pesky problem of out-of-stocks. Flash Foods worked with Pinnacle, a Texas corporation that supplies technology to the c-store and fuel petroleum markets, to implement and define a computer-assisted ordering (CAO) application. The first effort focused on a major category—cigarettes, and what managers learned was eye-opening.

“Across our company, we had 25 top brands in the cigarette category, and we knew that each store always needed the top 25,” said Jenny Bullard, chief information officer for Flash Foods. “But as we began using item-level inventory and CAO, we came to realize that those top 25 brands weren’t the same in every store. We were ordering cigarettes that weren’t selling at one location and not ordering enough that would sell at another.”

Stores were ordering too much product, some of which sat on shelves and went out of date, never making it to the store floor. By knowing each store’s inventory and what was moving, Flash Foods was able to reduce its inventory at store-level.

“At the same time, we were able to have the right products in the correct store and that helped us eliminate out-of-stocks,” Bullard said. “That was a huge achievement and a big learning curve for our stores.”

As a bonus, backrooms and coolers became clutter-free.

“The more you know about the products you carry, the more likely you are to stay in stock,” said David Bishop, managing partner of Balvor LLC, a Chicago-area retailing consultancy. “Flash was able to significantly reduce the amount of working capital tied up in inventory because their stores weren’t over-ordering to prevent going out-of-stock. Rather, they were ordering high-value items to ensure that they were in stock on what customers wanted, while reducing inventory in other areas. What’s monitored, gets measured, gets managed.”

Recommended Order
Rutter’s Farm Stores, the York, Pa.-based retailer, has an ordering system that relies on information about each location’s sales history and inventory.
“Stores have a recommended order instead of an absolute order, because things do happen,” said Dave Lau, merchandising manager for Rutter’s. “Maybe someone comes in and buys a couple cartons of cigarettes. The manager can compensate for that and adjust for anomalies in sale trends.”

Rutter’s works with PDI, a Temple, Texas-based solution  provider for the convenience industry. PDI supports the Rutter’s pricebook, and “it’s all intertwined,” Lau said.

The chain keeps employees up to date on the ordering technology and ensures that they use it properly. “We have in-house training, and all of our employees from part-time all the way up to managers go through it,” he said. “We also have refresher programs throughout the year. If there are issues, we go out to the stores and trouble shoot. It’s an ongoing process. It never ends, and that’s why you have a training department that keeps everybody on the right track.”

Rock Salt and Gatorade
Managers of the 18 tobacco and 11 convenience stores owned by Kocolene Marketing LLC of Seymour, Ind., receive by-item information from scan data, particularly for categories such as cigarettes and tobacco.

“We have reports that come out based on scan data, so store managers know how much they sell and what they should order,” said Andrea Myers, president at Kocolene Marketing. “All they need to do is count how many items they have on hand and subtract what they have to order.”
If a manager has trouble keeping merchandise in stock, Kocolene puts them on a special program. “We have them report to us every week about how many out-of-stocks they have and what items,” Myers said. “It helps them understand that they didn’t order enough and that they’re doing something wrong. Once you put them on that program, we don’t have that many problems.”

In addition, headquarters will automatically send out certain products they believe each store should carry. “We try to help them manage their categories with special seasonal force outs,” Myers said. “We increase distribution of Gatorade and water for the summer months and rock salt and windshield washer fluid in the winter.”

Delivery Schedule
Staying on top of store inventory helps operators establish a regular delivery schedule that is based on anticipated sales and customer needs.

“It wasn’t that long ago that stores got once-a-week delivery from their wholesaler,” said Lau of Rutter’s. “Now all stores get at least twice-a-week delivery, and some high-volume stores get three-times-a-week delivery.”

Each Flash Foods store receives one warehouse delivery a week, although some products are ordered every seven days and others are ordered every two weeks.

“Today if we walk into a store and see an empty hole on our shelves, we go back and check the store inventory,” Bullard said. “In most cases, it is what we call a ‘legit.’ That means they had a run for some reason on something like work gloves when it got cold. You just don’t see empty spots in our stores now.”

Bishop suggested that retailers remain vigilant with direct store deliveries (DSD) that allow the driver to stock store shelves with product inventory determined by the manufacturer, based in part on what’s on the truck.

“It’s convenient because the store operator is basically outsourcing that process,” he said. “But the distributor can put something in the store that doesn’t necessarily benefit the store and may keep adding inventory that’s unproductive—and worse yet, not prevent out-of-stocks.”

Many retailers are taking a proactive approach to DSD and asking why certain products are coming into their stores.

Stay in Stock
Ensuring that stores are stocked with items and brands customers want is the only way to keep those shoppers coming back, and retaining an existing customer is much easier than acquiring a new one.

“Every customer is extremely valuable,” Lau said. “Out-of-stocks can cause you to lose sales, lose profits and even lose customers. If out-of-stocks become an ongoing problem, you won’t just lose that sale for the day, you can lose some customers for eternity. That’s what you have to worry about.”

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