ORLANDO, Fla. — Though out-of-stocks at stores have remained a seemingly intractable problem for retailers, a pair of retailers and a manufacturer at the Food Marketing Institute's Distribution/Supply Chain Conference here said trading partner collaboration may hold the key to progress.
“Manufacturers have walked away from the problem — that's not the answer anymore,” said John M. Castle, global senior director, customer supply chain, Kraft Foods, Northfield, Ill. “We want to work with our retail partners to change the equation and find a way to improve [in-stock levels].”
Castle participated in a session, “Leveraging Manufacturer and Retailer Collaboration to Reduce Retail Out-of-Stocks,” with Robert Mooney of Meijer and Brooke Fan of Safeway, at the conference. The session was also part of the Grocery Manufacturers Association/Food Products Association's Information Systems & Logistics Distribution (IS/LD) Conference, co-located with the FMI conference.
Worldwide, out-of-stocks in stores continue to average about 8% of inventory, according to studies conducted at the University of Colorado at Colorado Springs.
Safeway has been especially focused on making sure its promotional products are in stock, noted Fan, director of supply chain strategies, Safeway, Pleasanton, Calif. “We need to work together with suppliers on promotion planning and forecasting to make sure that we meet customer expectations,” she said. A key part of this collaboration is sharing out-of-stock information with suppliers, she added.
Mooney, group vice president, distribution & manufacturing for Meijer, Grand Rapids, Mich., observed that while most out-of-stocks are caused by poor execution at the store level, a “significant portion” can be attributed to suppliers. As a result, “we've gotten involved with vendors trying to determine the root cause of out-of-stocks,” he said.
Mooney also addressed out-of-stock reduction last year at the GMA's IS/LD Conference in Tucson, Ariz. (See “Meijer to Suppliers: Help Us With Out-Of-Stocks,” SN, April 24, 2006.)
For Mooney, the first step in addressing supplier issues that may be causing out-of-stocks is to stop by Meijer's accounts payable office every week or two. There, he can determine which vendors are being charged for mis-ships, late shipments and other supply chain stumbles. “It's better to get involved at the front end when the dollars are small and start working with your business partners,” he said. Often, he added, the problem turns out to be linked to Meijer's own warehouse practices.
In any case, Mooney takes a hand-on approach to his investigations. “You need to go to the scene of the crime — your dock, or your vendor's dock,” he said. “There are some problems that you can't figure out till you find out what's physically going on with the product.”
Mooney also recommended getting to know someone personally at a major vendor who can be approached when there is a problem. And the time to act is immediately, while the problem is still fresh, he said. Scorecards that track a vendor's performance can provide direction, he added.
Late shipments from a supplier are among the factors that can lead to out-of-stocks at Meijer, said Mooney. The reason is that Meijer's automated replenishment system generates orders on the assumption that goods arrived at the store on time. If that is not true, then fewer products than necessary may be ordered, resulting in stock outs.
Mis-shipments from suppliers are another contributing factor. “If a vendor ships item A instead of item B, the net effect is you didn't get the item you wanted and you can run out of stock down the road,” Mooney said.
Another issue is when a supplier ships something that was not on a purchase order. In one case, a vendor tried to fill up a trailer with goods from another purchase order. “They were over-shipping on one load, and short-shipping on another,” said Mooney. “The implications for out-of-stocks were rather significant.”
Safeway and Kraft were able to come up with strategies for out-of-stock reduction as a result of an “innovation session” a few years ago aimed at “brainstorming how to grow the business and reduce costs,” said Fan.
Out of that session, she said, came a methodology to measure and improve in-stock performance. It includes four steps: identifying an exception outside an agreed-upon range, understanding the root cause of the problem, taking action to correct it, and validating that the issue was corrected.
Fan also described how, in the past few years, Safeway has changed its supply network to be driven by consumer demand. By sharing POS data with vendors, “we're synchronizing product flow to meet customer expectations,” she said. In that way, “we're sharing accountability for in-stock positions jointly with suppliers.” Safeway is also sharing out-of-stock data, which is gathered manually at stores on a daily basis, she said.
Castle described three global pilots under way with retailers. In France, the focus is on Kraft's coffee business. “We're looking at sales and out-of-stock data that's about six days old,” he said. “We're sitting down with the retailer weekly to review that data.” In another pilot, Kraft is working with a retailer to predict shelf-level conditions, he said. With a third retailer, Kraft is “sitting down quarterly to talk about reasons for out-of-stocks.”