Rising Tides

It is better to aim high and miss than to aim low and hit. – Les Brown

Why is the shelf empty?

I could go on and on about the myriad factors that could be at play, but it really boils down to one of two things:

  1. Failure to anticipate (or quickly react to) demand or;
  2. Not enough available supply, even if demand is properly planned

The first one is pretty obvious. No how matter how much effort you put into forecasting, sometimes shit just happens. The season breaks way earlier than expected. A mundane product that’s been selling steadily for years “goes viral” because of a TikTok trend. Or a customer just comes in and wipes you out unexpectedly for no discernible reason.

The second one is also obvious – at least on the surface. Clogged ports, pandemics and strikes immediately come to mind. But what often doesn’t come to mind is store inventory accuracy. Of all of the millions of item/locations in retail stores with a computerized on hand balance, how many times does the replenishment system think there’s stock available to sell when there is actually none? And how often does this condition go undetected until the store manager starts seeing shelf gaps? With store inventory accuracy hovering in the 50-60% range, I’m going to say “probably a lot”. 

I would argue that it’s probably the single biggest “supply issue” in retail, but the subject is so universally ignored and not measured that there’s no way of actually proving me right or wrong on that. But it sure feels like I may be right.

Regardless, lack of incontrovertible evidence aside, an informal quorum of people seem to agree with me anyhow, even if they may not know it. 

Why do I say that?

Whenever we talk to retailers about fully integrated planning from supplier to shelf and explain the process in detail, someone inevitably connects these dots:

  • Store on hands are a critical input to the planning process – TRUE!
  • Store on hands aren’t particularly accurate – TRUE!
  • Therefore, you can’t properly plan anything until inventory accuracy is under control – hmmm, well…

Here’s the thing about that last point: Inaccurate inventory has been a problem in retail for time immemorial. Computer assisted ordering, stock checking for customers, online order pickup in store – these are all common practices in retail today and have delivered significant benefits in terms of growth, efficiency and customer service. The most critical input for all of these processes is store inventory balances, which everybody knows are not accurate. Yet I haven’t seen any retailers shutting down automated ordering or buy online/pick up in store programs until their store inventory accuracy is up to snuff. 

Could greater benefits be achieved if store inventory records were more accurate? Duh! But that doesn’t change the fact that significant benefits can be (and have been) achieved in spite of inaccurate inventories. Implementing an end-to-end planning approach that relies on store inventory balances is no different in that regard. There is no hard dependency on some arbitrary level of inventory accuracy to start building or improving upon planning capabilities.

Transforming a retailer from a reactionary firefighter to an integrated planning organization takes hard work and discipline and delivers enoromous benefit.

Sustainably improving inventory accuracy in stores also takes hard work and discipline and also delivers enormous benefit.

Either of these initiatives can appear daunting individually, so – except for the most courageous among us – creating a false dependency (i.e. “we can’t plan without accurate inventory”) is a surefire way to ensure that nothing gets done about either of them.

As John F. Kennedy famously popularized: “The rising tide lifts all the boats.”

A retailer with so-so inventory accuracy will be made better with improved planning capabilities. A retailer with poor (or virtually nonexistent) planning capabilities will be made better with improved inventory accuracy.

So work on planning and shelve inventory accuracy for awhile.
Or work on inventory accuracy and shelve planning for awhile. Or be extra brave and work on both at the same time.

But work on something.

Remember Warren Buffet’s addendum: “A rising tide may lift all boats, but only when the tide goes out do you realize who’s been swimming naked.” 

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