On Shelf Symbiosis (Robots Optional)

 

The cows shorten the grass, and the chickens eat the fly larvae and sanitize the pastures. This is a symbiotic relation. – Joel Salatin

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Daily .

It’s the gold standard measure of customer service in retail. The inventory level for each item at each selling location is evaluated independently on a daily basis to determine whether or not you are “in stock” for that item at that store.

The criteria to determine whether or not you are “in stock” can vary (e.g. at least one unit on hand, enough to cover forecasted sales until the next shipment arrives, X% of minimum display stock covered, etc.), but the intent is the same. To develop a single, quantifiable metric that represents how well customers are being served (at least with regard to inventory availability).

One strength of this measure is that – unless you get crazy with conditions and filters – it’s relatively easy to calculate with available information. A simple version is as follows:

  • Collect nightly on hands for all item/locations where there is a customer expectation that the store should have stock at all times (e.g. currently active planogrammed items)
  • If there’s at least 1 unit of stock recorded, that item/location is “in stock” for that day. If not, that item/location is “out of stock” for that day.
  • Divide the number of “in stock” records by the number of item/locations in the population and that’s your quick and easy in stock percentage.

By calculating this measure daily, it becomes less necessary to worry about selling rates in the determination. If an item/location is in stock with 2 units today, but the selling rate is 5 units per day, it stands to reason that the same item/location will be out of stock tomorrow. What’s important is not so much the pure efficacy of the measure, rather that it’s evaluated daily and moving in the right direction.

Using this measure, people can picture the physical world the customer is seeing. If your in-stock is 94% at a particular store on a particular day, then that means that 6% of the shelf positions in the stores were empty, representing potential lost sales.

Here’s the problem, though: Customers don’t care about the percentage of the time that your digital stock records are >0 (or some other formula) – they want physical products on the shelf to buy.

That’s the major weakness of the in stock measure – in order to interpret it as a true customer service measure, the following (somewhat dubious) assumptions must be made:

  1. The number of units of an item that the system says is in the store is actually physically in the store. You can deduct 5 points from your in stock just by making this assumption alone.
  2. Even if assumption #1 is true, you then need to assume that the inventory within the 4 walls of the store is in a customer accessible location where they would expect to find it.

That’s where shelf scanning robots come in – quiet, unassuming sentinels traversing the aisles to find those empty shelves and alert staff to take action.

As cool and futuristic as that notion is, it must be noted that this is still a reactive approach, no matter how quickly the holes can be spotted.

The real question is: Why did the shelf become empty in the first place?

Let’s consider that in the context of our 2 assumptions:

  1. It could very well be that a shortage of stock is the result of shitty planning. But for the sake of argument, let’s say that you have the most sophisticated and responsive planning process and system in the world. If there is no physical stock anywhere in the store, but the planning system is being told that the store is holding 12 units, what exactly would you expect it to do? Likewise, if there is “extra” physical stock in the store that’s not accounted for in the on hand balance, the replenishment system will be sending more before it’s actually needed, which results in a different set of problems – more on that later.
  2. To the extent that physical stock exists in the 4 walls of the store (whether the system inventory is accurate or not) and it is not in a selling location, the general consensus is that this is a stock management issue within the store (hence the development of robots to more quickly and accurately find the holes).

While the use of a daily recalculating planning process is the best way to achieve high levels of in stock, more needs to be done to ensure that the in stock measure more closely resembles , which is what the customer actually sees.

Instituting a store inventory accuracy program to find and permanently fix the process failures that cause mismatches between the stock records and the physical goods to occur in the first place will make the in stock measure more reliable from a “what’s in the 4 walls” perspective.

Flowing product directly from the back door to the shelf location as a standard operating procedure gives confidence that any stock that is within the store is likely on the shelf (and, ideally, only on the shelf). This goes beyond just speeding up receiving and putaway (although that could be a part of it). It’s as much about lining up the space planning, replenishment planning and physical flow of goods such that product arrives at the store in quantities that can fit on the shelf upon arrival. This really isn’t super sophisticated stuff:

  1. From the space plan, how much capacity (in units) is allocated to the item at the store? How much of that capacity is “reserved” by the minimum display quantity?
  2. Is the number of units in a typical shipment less than the remaining shelf space after the minimum display quantity is subtracted from the shelf capacity?

If the answer to question 2 is “no”, then you’re basically guaranteeing that at least some of the inbound stock is going to go onto an overhead or stay in the back room. The shelf might be filled up shortly after the shipment arrives, but you can’t count on the replenishment system to send more when the shelf is low a few weeks later, because the backroom or overhead stock is still in the store, leading to potential holes.

Solving this problem requires thinking about the structural policies that allocate space and flow product into the store:

  • Is enough shelf space allocated to this item based on the demand rate?
  • Are shipping multiples/delivery frequency suitable to the demand rate and shelf allocation?

Finding this balance on as many items as possible serves to ensure – structurally – that any product in the store exists briefly on the receiving dock, then only resides in the selling location after that (similar to a DC flowthrough operation with no “putaway” into storage racking).

Like literally everything in retail, the number 100% doesn’t exist – it’s highly unlikely that you’ll be able to achieve this balance for all items in all locations at all times. But the more this becomes standard criteria for allocating space and setting replenishment policies, the more you narrow the gap between “in stock” and “on the shelf”.

So if the three ingredients to on shelf availability are 1) continuous daily replanning, 2) maintaining accurate inventory records and 3) organizing the supply chain and space plans to flow product directly to the shelf while avoiding overstock, then any work done in any of these areas in isolation will definitely help.

Taken together, however, they work symbiotically to provide exponential value in terms of customer service:

  • More accurate inventory balances means that the right product is flowing into the back of the store when it’s needed to fulfill demand, decreasing the potential for holes on the shelf due to stockout.
  • Stocking product only on the shelf without any overhead/backroom stock keeps it all in one place so that it doesn’t end up misplaced or miscounted, increasing .
  • Improved inventory accuracy increases the likelihood that when a shipment arrives, the free shelf space that’s expected to be there is actually there when the physical stock arrives.

The (stated) intent of utilizing shelf scanning robots is to help humans more effectively keep the shelves stocked, not to make them obsolete.

I think it a nobler goal to design from end-to-end for the express purpose of maximizing on shelf availability as part of day in, day out execution.

And obsolete those robots.

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