You never know who’s swimming naked until the tide goes out. – Warren Buffett
Up until a couple of years ago, growth in online sales has been relatively slow and steady overall, with click & collect being the fastest growing channel. This put brick & mortar retailers somewhat back in the driver’s seat versus the pure online players like Amazon.
While brick & mortar retailers have struggled with execution in their online businesses, it represented a relatively small fraction of their sales. Most of their revenue came from foot traffic in their stores and retailers made steady progress investing in and nurturing their online businesses, with plans to grow those channels gradually over many years.
The COVID-19 pandemic changed all of that. Different retailers were affected in different ways depending on what they sell and where they do business, but many retailers needed to shift to nearly 100% online fulfillment for an extended period of time virtually overnight.
Responding to such a massive, unforeseen event in such a short period of time caused unavoidable stress in terms of store operations, staffing and variability in demand and supply, but make no mistake – a great deal of the pain was self inflicted.
You see, for years (decades really), customers have been subsidizing retailers for their poor stock management. When a customer in the aisle finds a gap where the product they wanted should be, about one third of the time the retailer loses the sale. But two thirds of the time, a customer will either switch to a similar product that is in stock or come back and buy it later, preserving the sale for the retailer.
This behaviour has been well documented in numerous studies on retail out-of-stocks, but it was all too easy for retailers to tell themselves “Yes, well maybe those retailers who participated in the studies angered their customers and lost sales, but not us. We’re special.”
Without the ability to definitively capture the absence of a sale that would have otherwise occurred in transaction history, many retailers could console themselves in the belief that the findings of those studies were academic and theoretical – the problem was surely not that bad.
Then the pandemic hit and many retailers were forced to conduct virtually all of their business online. And they got caught with their pants fully down.
The standard approach for fulfilling a click & collect order goes something like this:
A customer submits an online order for pickup at a store of his/her choosing
A check is performed against the store’s inventory balance to make sure that there is sufficient stock at the selected store to fill it
If sufficient stock exists, the order is assigned to the store for picking
The store picks the order and the customer is notified when they can pick it up
Based on discussions with our clients who routinely measured their online order fill rate (with reason codes for failures) during the pandemic, an employee in the store who is given a pick list (that has already been checked against the store stock balance before being issued) runs into an empty shelf up to 20% of the time when they attempt to pick the order.
(Sidebar: There REALLY needs to be a formal study on this)
To be clear, this was happening before the pandemic hit, but when online sales only represent 5-10% of your overall business, it’s easier to just sweep it under the rug and wait for it to become more pressing before doing anything about it. It becomes significantly more problematic when your stores are dealing with nearly 100% online sales volume for weeks or months at a time.
So, given that; a) an online customer isn’t in the store to make an “in the moment” decision to bail you out and; b) it’s not possible to undo years of neglect with regard to store stock management in a few days, what choices are left?
Actually, there are several. From a cost and customer service standpoint, none of them are good:
Take a margin hit by automatically substituting a more expensive version of what the customer ordered (if it’s in stock) in the hopes that the customer will appreciate it (which they may not)
Waste more of your time (and your customer’s) contacting them to find out if they really really wanted the item or if they would be willing to take a substitute.
Delay the order and/or incur significant additional cost having the out-of-stock item(s) rush delivered from the DC or another store who does have the out-of-stock item on hand.
Cancel the customer’s order altogether after exhaustively searching for the item(s) and coming up empty.
Hell, maybe the pandemic (or something like it) won’t repeat itself anytime soon and we can all go back to business as usual and deal with store stock management “at some later date”.
But what would be the downside of tackling it now?
Our system of make-and-inspect, which if applied to making toast would be expressed: “You burn, I’ll scrape.” – W. Edwards Deming (1900-1993)
What would Dr. Deming make of retail store inventory accuracy?
Impossible to know for a couple of reasons. First, he died nearly thirty years ago. Second, the bulk of his career was devoted to the attainment of total quality management in manufacturing. That said, the spirit of his famous 14 Points for Management first published in his 1982 book Out of the Crisis applies to – well, pretty much every facet of every business and store inventory accuracy is no exception.
Point 1: Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.
If there’s one thing that the COVID-19 pandemic has taught retailers, it’s that when your system on hand records don’t match the physical stock in the store, it’s a real problem for customer service and productivity. When your sales primarily come from walk-in business, there’s really no reliable way of knowing how many customers walked out unsatisfied or made a substitution as a result of an empty shelf.
When you assign online pickup orders to be picked at a store because the system on hand balance shows stock, the curtain is unceremoniously ripped away. How many orders couldn’t be fulfilled because the available stock in the system couldn’t be found in the store? How much wasted time was spent fruitlessly trying to find the stock to pick the orders?
Retailers don’t measure their inventory accuracy. They must.
Retailers don’t adequately research the process and transactional errors that cause their inventory to become inaccurate in the first place. They must.
Point 2: Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
Inaccurate stock records don’t “just happen”. They are the result of one of two things:
People aren’t following the correct processes for managing stock
People are correctly following flawed processes for managing stock
In either case, the responsibility falls on management to correct these issues. This can’t be accomplished without diving deep to understand the processes and behaviours that are causing errors.
Point 3: Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.
This is one that retailers generally don’t understand. At all. Most “inventory accuracy” programs focus on trying to optimize counting frequency. Items with historically poor inventory accuracy are cycle counted and corrected more frequently than items with fewer historical errors, with little investigation as to why those errors are happening in the first place. This approach is really “problem solving theatre” – there are process issues that are causing the errors and constantly repairing the output without addressing the root causes of why the records became inaccurate in the first place will never lead to sustained inventory accuracy.
Point 4: End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.
Are you buying products from suppliers that make it more difficult to keep stock accurate in stores? Do they wrap several different items in nearly identical packaging to save money at the expense of confusing store staff and customers? Are the barcodes applied with easily removeable (and switchable) stickers? Are the barcodes easy to find and scan at the checkout?
This is often small potatoes when compared to the in store process and behavioural issues, but every little bit helps. Missed sales caused by inaccurate stock affects the supplier too, so to the extent that they can work with retailers to avoid being part of the problem, everyone will benefit.
Point 5: Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
Focusing on inaccurate stock records is trying to manage the output. Inaccurate inventory is caused by processes that result in inaccurate transactions which in turn result in inaccurate on hand balances.
If you research a variance and determine it was because Mary made a mistake at the checkout, what you’ve found is an explanation for that particular error, not a root cause.
Why did Mary make that mistake? Was it a specific one-off event that won’t likely ever be repeated? Has she been properly trained on proper checkout procedures? Are the checkout procedures themselves flawed? Has management instructed Mary to focus on speed over accuracy? Are other cashiers making similar mistakes for the same reasons?
Point 6: Institute training on the job.
The retail industry in general is notorious for high turnover in front line staff – you know, the people who actually transact stock movements within the store. As a result, it can be tempting to skimp on training new people for fear that your investment won’t be returned. When new people have questions, they need to go to a manager for instruction on what to do. More often than not, busy managers will provide shortcut solutions that are designed to get the problem off their plates as quickly as possible.
Is saving money on training actually saving money?
Point 7: Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
Training is a good start, but it’s not enough to sustain inventory accuracy. Do people understand why inventory accuracy is important to customers and fellow team members and how their role can impact it?
Point 8: Drive out fear, so that everyone may work effectively for the company.
Poor inventory accuracy should not be seen as a reflection of people’s performance, rather the performance of the process. If inventory discrepancies discovered in cycle counts result in witch hunts that are used to find culprits and lay blame, people will quickly learn “the right amount” of error they can report to avoid suspicion on the low end and recriminations on the high end. The true problems will remain buried under rosy reports that everyone can reference to argue that a problem doesn’t exist.
Point 9: Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and in use that may be encountered with the product or service.
Contributors to inaccurate inventory records can be found anywhere and processes (both internal and external to the store) can be the cause. Is an inventory accuracy lens being used when designing new processes and procedures in Loss Prevention, Merchandising, Sourcing, DC Picking, Store Receiving and Stock Management?
Point 10: Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.
There may well be some store employees who are deliberately trying to sabotage the business, but they are in a very small minority. Telling people “We need you to keep your stock more accurate” without first investing in education, training and the proper tools is like giving them a mule and telling them to go out and win the Kentucky Derby.
Point 11: 11a. Eliminate work standards (quotas) on the factory floor. Substitute leadership. 11b. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.
Don’t let this one fool you. Deming was all about data collection and measurement of results. It’s what you do with the data that counts. Stock variance reports can alert management to where the problems may lie, but the only path to a solution is to dig in and understand the process in detail. Once a process change is made that you feel should have solved the problem, future rounds of data collection will tell you whether or not you were successful. If you weren’t successful, you need to dig in again, because there is something you missed.
Point 12: 12a. Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. 12b. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective.
See Points 6 and 7 above. The impact to customers and fellow team members of doing things that cause stock to become inaccurate is easy to explain. People want to do a good job, but they need to be given the right education, training and tools.
13. Institute a vigorous program of education and self-improvement.
When it comes to store inventory accuracy, there’s never a point at which you are finished. There will always be new causes of errors and processes that need improving.
14. Put everybody in the company to work to accomplish the transformation. The transformation is everybody’s job.
Store perpetual inventory has been around for decades. So have the process gaps, bad habits and lack of care that makes inventory records inaccurate. There are a lot of people involved and a lot of moving parts that will make it difficult to attain and sustain high levels of inventory accuracy at stores. It will take effort. It will cost some money. It won’t be easy.
But living with the impacts of poor on hand accuracy is no walk in the park either. It’s taking MORE effort, costing MORE money and making things MORE difficult on a daily basis.
The problem with wearing a facade is that sooner or later life shows up with a big pair of scissors. – Craig D. Lounsbrough
Russia had recently annexed Crimea from the Ottoman Empire and after a long war, the region of New Russia now found itself under the rule of Empress Catherine II (a.k.a. Catherine the Great).
In 1787, Catherine embarked on a 6 month journey down the Dnieper River to New Russia to survey her new territory. Accompanying her on this journey was her boyfriend, Grigory Potemkin.
Unbeknownst to Catherine, the region had been devastated by the war. According to folklore, Potemkin – in an effort to placate Catherine – sent ahead an “advance team” to erect a fake village bustling with people before Catherine’s flotilla sailed by. After she had passed, the village would be taken down, rushed further downstream and reassembled to give Catherine the false impression that New Russia was a vibrant and welcome addition to her empire and that all of the treasure and bloodshed to obtain it was not in vain.
It’s been over 230 years, but the tradition of the Potemkin Village is alive and well today.
Don’t believe me?
Try visiting a retail store on a day when the store manager (Grigory) has just been informed that the bigwigs from home office (Catherine) will be stopping by for a visit. In all likelihood, an advance communication went to the store telling them that they don’t need to do anything to prepare in advance and they should just carry on as usual – the bigwigs don’t want to get in the way.
A flurry of activity soon ensues. The receiving area and back room are cleaned up and all stock is run out to the floor. Shelves and pegs are filled up, faced up and looking neat. Any aisle clutter is either put away or hidden. This is the kind of stuff that should be happening daily if people had the time – and yet, oddly, the time can be found to do two weeks’ worth of work in 3 days ahead of a VIP visit.
Sidebar: I once worked at a retailer (who shall remain nameless) with hundreds of stores each stocking thousands of products. But there was one store in particular that had its own unique set of stocking policies and ordering rules. This same store was always the top priority location when stock was low in the DC and needed to be rationed. What made this store so special? It happened to be located near the CEO’s home and he was known to shop there frequently. Not making that up.
Okay, back to the VIP visit. The big day arrives and the store is looking fantastic. The VIP entourage arrives and the store manager is waiting at the entrance to give the grand tour. Pleasantries are exchanged. How have sales been? Lots of customers in today! Any issues we need to know about?
Then comes the much anticipated Walking of the Aisles. The VIPs are escorted throughout the store, commenting on the attractiveness of the displays, asking questions and making suggestions….
Then someone in the entourage sees a shelf tag with no stock above it. “Why don’t you have stock? That’s sales we could be losing!”
The sheepish store manager replies: “I dunno. The ordering is centralized at headquarters. We just run product to the shelf when it arrives. We actually haven’t had that item in weeks and I can’t get a straight answer as to why not.”
“We need to support the stores better than this!”, exclaims one of the VIPs. “I’ll get this straightened out!”. Out comes the cell phone to snap a picture of the shelf tag below the void where stock should be. And for good measure, a few more pics of other holes in the same aisle.
A couple of taps and the pics are on their way to whichever VP is in charge of store replenishment with the subject line: “please look into this” (no time for proper capitalization or punctuation).
Ten minutes later, a replenishment analyst receives an email from her manager with the subject line: “FW: FW: FW: FW: please look into this”.
Another sidebar: I happened to be shadowing a replenishment analyst for another retailer for the purpose of learning her current state processes when one of those emails with pictures came in. There were 6 or 7 pictures of empty shelf positions and she researched each one. For all but one of the items, the system showed that there was stock in the store even though there was apparently none on the shelf. The last one was indeed stocked out, but a delivery was due into the store on that very same day. Was this a good use of her time?
Look, I know the tone of this piece is probably a bit more snarky than it needs to be. And although this whole scenario is clearly absurd when laid out this way, I’m not projecting malice of intent on anyone involved:
The VIP spotted a potential customer service failure and wanted to use her power to get it rectified. It never occurred to her that the culprit might be within the 4 walls of the store because: a) the store looked so nice and organized when she arrived; and b) the organization doesn’t measure store inventory accuracy as a KPI. If shrink is fairly low, it’s just assumed that stock management is under control.
In all likelihood, the store manager truly has no idea how replenishment decisions are made for his store. And while there’s a 4 inch thick binder in the back office with stock management procedures and scanning codes of conduct, nobody has actually properly connected the dots between those procedures and stock record accuracy more generally.
The replenishment analyst wants to help by getting answers, but she can’t control the fact that the wrong question is being asked.
The problem here is that there are numerous potential points of failure in the retail supply chain, any of which would result in an empty shelf position for a particular item in a particular store on a particular day. Nothing a senior manager does for 20-30 minutes on the sales floor of a store will do anything to properly identify – let alone resolve – which process failures are contributing to those empty shelves.
Jumping to the conclusion that someone on the store replenishment team must have dropped the ball is not only demoralizing to the team, it’s also a flat-out wrong assumption a majority of the time.
If you happen to be (or are aspiring to be) one of those VIPs and you truly want the straight goods on what’s happening in the stores, you need to change up your game:
Every so often, visit a store unannounced – completely unannounced and spend some time in the aisles by yourself and soaking in the true customer experience for awhile before speaking to store management.
When it’s time to get a feel for what can be done to keep the shelves full, put down the phone and pick up a handheld reader. Just because the stock isn’t on the shelf right now, that doesn’t mean that it isn’t elsewhere in the store or on its way already.
Spend the time you would normally spend on pleasantries and somewhat meaningless measures on a deep dive into some of those shelf holes with the store manager in tow:
Shelf is empty, but the system says there’s 6 in the store? Let’s go find it!
Truly out of stock with 0 reported on hand and none to be found? Let’s look at what sales have been like since the last delivery.
Can’t figure out why the replenishment system doesn’t seem to be providing what’s needed? Work through the calculations and see if there’s something wrong with the inputs (especially the on hand balance).
Will looking past the facade of the Potemkin Village solve the problems that it’s been hiding? Probably not. But you need to start somewhere.
In the words of George Washington Carver: “There is no shortcut to achievement. Life requires thorough preparation – veneer isn’t worth anything.”
Let’s be honest, no one likes to be wrong. From early schooling and continuing through our careers we’ve been ingrained to do our best to be right. It keeps us out of trouble, builds our self-esteem and helps us progress.
But what if our views on being wrong were, well, wrong?
There is growing research from a number of disciplines that in order to improve, grow, innovate and lead you need to be able to question your own thinking – allowing for different ideas and views to be heard and essentially being humble enough to admit that you might be wrong about what you think you know.
To illustrate this point of view, consider Julia Galef, co-founder of the Center for Applied Rationality, who asks a beautiful, metaphorical question, “Are you a soldier or a scout?
Soldiers defend and protect. Scouts, in contrast, seek and try to understand. In her view and a number of others, this worldview shapes how you process information, develop ideas and guides your ability to change.
The mindset of a scout is anchored in curiosity. They love to learn, feel intrigued when something new contradicts their previous views and they are also extremely grounded: their self-worth as a person or team mate isn’t tied to how right or wrong they are about a specific topic.
Scouts have what many refer to as “intellectual humility” – a term that has been popularized in the past several years by a number of influential folks including Google’s Lazlo Block and University of Virginia Professor Edward Hess, who even penned a brilliant book entitled, “Humility is the new smart”. According to Hess, in order to compete you need to assume the role of lifelong humble inquirer.
Intellectual humility is loosely defined as “a state of openness to new ideas, and a willingness to be receptive to new sources of evidence”. At the heart of intellectual humility are questions. Scouts ask lots of questions and are comfortable with all sorts of answers.
In short, scouts have a completely different view about being wrong. They’re actually cool with it. They embrace it. And understand that being wrong is as important as being right – since they understand that being wrong helps you learn, change, iterate and, ultimately, make breakthroughs.
While you might feel a tad uncomfortable with this assertion, I would contend that virtually every major innovation, change or scientific breakthrough started out, at some point, being “wrong”.
While I’m not sure I’d consider myself a scout (though I do like the term and metaphor), I can surely confess I’ve been wrong a lot. Maybe even more often than I’ve been right.
As just one example, a few years ago I was on a team working to achieve inventory accuracy in stores. We’d followed a sensible approach that we’ve outlined in previous newsletters – frequently counting a control group of items to uncover and correct the root causes of the errors.
The team had surfaced and resolved some important discipline and housekeeping errors and consistently had the control group of products between 92-94% accurate. Unfortunately, I helped to convince the team that we needed to get to virtually 100% accurate before we could roll it out to all stores.
Unfortunately, I was wrong.
A couple of years ago I was talking to a colleague who has more experience and, importantly, a different view. He asked me why I thought that we needed to be 100% accurate and, during the discussion, politely reminded me that “perfection is the enemy of great”. According to him, what we’d done could have been rolled out to all stores, instead of only rolling out minor procedural changes.
Here’s a great example of why I think being wrong is actually pretty instructive. This learning helped me change my perspective on change and altered my thinking and approach. Now “perfection” will never be the goal and good enough truly is – since good enough gets done (implemented) and done can be built on and improved.
Now, I’m not saying you should try to be wrong. It’s just that being wrong has gotten a bad rap. Innovation and change require that you get good and comfortable with the notion of being wrong. Wrong leads to right.
Of course, that’s my view and, well, I could be wrong.
The cows shorten the grass, and the chickens eat the fly larvae and sanitize the pastures. This is a symbiotic relation. – Joel Salatin
Daily In Stock.
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:
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.
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:
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.
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 on shelf availability, 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:
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?
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 inventory accuracy.
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.
Retailers are pretty terrible at keeping their store inventory accurate
It’s costing them a lot in terms of sales, customer service and yes, shrink
The problem is pervasive and has not been properly addressed due to some combination of willful blindness, misunderstanding and fear
I think what mostly gives rise to the inaction is the assumption that the only way to keep inventory accurate is to expend vast amounts of time and energy on counting.
Teaching people how to bandage cuts, use eyewash stations or mend broken bones is not a workplace health and safety program. Yes, those things would certainly be part of the program, but the focus should be far more heavily weighted to prevention, not in dealing with the aftermath of mishaps that have already occurred.
In a similar vein, a store cycle counting program is NOT an inventory accuracy program!
A recent trend I’ve noticed among retailers is to mine vast quantities of sales and stock movement data to predict which items in which stores are most likely to have inventory record discrepancies at any given time. Those items and stores are targeted for more frequent counting so as to minimize the duration of the mismatch. Such programs are often described as being “proactive”, but how can that be so if the purpose of the program is still to correct errors in the stock ledger after they have already happened?
Going back to the workplace safety analogy, this is like “proactively” locating an eyewash station near the key cutting kiosk. That way, the key cutter can immediately wash his/her eyes after getting metal shavings in them. Perhaps safety glasses or a protective screen might be a better idea.
Again, what’s needed is prevention – intervening in the processes that cause the inaccurate records in the first place.
Think of the operational processes in a store that adjust the electronic stock ledger on a daily basis:
Adjustments for damage, waste, store use, etc.
Two or more of those processes touch every single item in every single store on a fairly frequent basis. To the extent that flaws exist in those processes that result in the wrong items and quantities being recorded in the stock ledger (or even the right items and quantities at the wrong time), then any given item in any given store at any given time can have an inaccurate inventory balance without anyone knowing about it or why until it is discovered long after the fact.
By the same token, fixing defects in a relatively small number of processes can significantly (and permanently) improve inventory accuracy across a wide swath of items.
So how do you find these process defects?
At the outset, it may not be as difficult as you think. In my experience, a 2 hour meeting with anyone who works in Loss Prevention will give you plenty of things to get started on. Whether it’s an onerous and manual receiving process that is prone to error, poor shelf management or lackadaisical behaviour at the checkout, identifying the problems is usually not the hard part – it’s actually making the changes necessary to begin to address them (which could involve system changes, retraining, measurement and monitoring or all of the above).
If your organization actually cares about keeping inventory records accurate (versus fixing them long after they have been allowed to degrade), then there’s nothing stopping you from working on those things immediately, before a single item is ever counted (see the Confucius quote at the top). If not, then I hate to say it but you’re doomed to having inaccurate inventory in perpetuity (or at least until someone at or near the top does start caring).
Tackling some low hanging fruit is one thing, but to attain and sustain high levels of accuracy – day in and day out – over the long term, rooting out and correcting process defects needs to become part of the organization’s cultural DNA. The end goal is one that can never be reached – better every day.
This entails moving to a three pronged approach for managing stock:
Counting with purpose and following up (Control Group Cycle Counting)
Keeping the car between the lines on the road (Inspection Counting)
Keeping track of progress (Measurement Counting)
Control Group Cycle Counting
The purpose of this counting approach is not to correct inventory balances that have become inaccurate. Rather, it’s to detect the process failures that cause discrepancies in the first place.
It works like this:
Select a sample of items that is representative of the entire store, yet small enough to detail count in a reasonable amount of time (for the sake of argument, let’s say that’s 50 items in a store). This sample is the control group.
Perform a highly detailed count of the control group items, making sure that every unit of stock has been located. Adjust the inventory balances to set the baseline for the first “perfect” count.
One week later, count the exact same items in detail all over again. Over such a short duration, the expectation is that the stock ledger should exactly match the number of units counted. If there are any discrepancies, whatever caused the discrepancy must have occurred in the last 7 days.
Research the transactions that have happened in the last week to find the source of the error. If the discrepancy was 12 units and a goods receipt for a case of 12 was recorded 3 days ago, did something happen in receiving? If the system record shows 6 units but there are 9 on the shelf, was the item scanned once with a quantity override, even though 4 different items may have actually been sold? The point is that you’re asking people about potential errors that have recently happened and will have a better chance of successfully isolating the source of the problem while it’s in everyone’s mind. Not every discrepancy will have an identifiable cause and not every discrepancy with an identifiable cause will have an easy remedy, but one must try.
Determine the conditions that caused the problem to occur. Chances are, those same conditions could be causing problems on many other items outside the control group.
Think about how the process could have been done differently so as to have avoided the problem to begin with and trial new procedure(s) for efficiency and effectiveness.
Roll out new procedures chainwide.
Repeat steps 3 to 7 forever (changing the control group every so often to make sure you continue to catch new process defects).
Eight simple steps – what could be easier, right?
Yes, this process is somewhat labour intensive.
Yes, this requires some intestinal fortitude.
Yes, this is not easy.
How much time does your sales staff spend running around on scavenger hunts looking for product that “the system says is here”?
How much money and time do you waste on emergency orders and store-to-store transfers because you can’t pick an online order?
How long do you think your customers will be loyal if a competitor consistently has the product they want on the shelf or can ship it to their door in 24 hours?
In previous pieces written on this topic, I’ve referred to this as “Process Control Counting” – so coined by Roger Brooks and Larry Wilson in their book Inventory Record Accuracy – which they describe as being “controversial in theory, but effective in practice”.
We’ve found that moniker to be not very descriptive and can be confusing to people who are not well versed in inventory accuracy concepts (i.e. every retailer we’ve encountered in the last 25 years).
The Inspection Counting approach is designed to quickly identify items with obvious large discrepancies and correct them on the spot.
Here’s how it works:
Start at the beginning of an aisle and inquiry the first item using a handheld scanner that can instantly display the inventory balance.
Quickly scan the shelf and determine whether or not it appears the system balance is correct.
If it appears to be correct, move on to the next item. If there appears to be a large discrepancy, do some simple investigation to see if it can be located – if not, then perform a count, adjust the balance and move on.
It may seem like this approach is not very scientific and subject to interpretation and judgment on the part of the person doing the inspection counting. That’s because it is. (That’s the “controversial” part).
But there are clear advantages:
It is fast – Every item in the store can be inspection counted every few weeks.
It is efficient – The items that are selected to be counted are items that are obviously way off (which are the ones that are most important to correct).
It is more proactive – “Hole scans” performed today are quite often major inventory errors that occurred days or weeks ago and were only discovered when the shelf was empty – bad news early is better than bad news late.
No matter how many process defects are found and properly addressed through Control Group Counting, there will always be theft and honest mistakes. Inspection Counting ensures that there is a stopgap to ensure that no inventory record goes unchecked for a long period of time, even when there are thousands of items to cycle through.
As part of an overall program underpinned by Control Group Counting and process defect elimination, the number of counts triggered by an inspection (and the associated time and effort) should decrease over time as fewer defects cause the discrepancies in the first place.
The purpose of this counting approach is to use sampling to estimate the accuracy of the population based on the accuracy of a representative group.
It works like this:
Once a month, select a fresh sample of items that is representative of the entire store, yet small enough to detail count in a reasonable amount of time, similar to how a control group is selected. This sample is the measurement group.
Perform a highly detailed count of the measurement group items, making sure that every unit of stock has been located.
Post the results in the store and discuss it in executive meetings every month. Is accuracy trending upward or downward? Do certain stores need some additional temporary support? Have new root causes been identified that need to be addressed?
Whether retailers like it or not, inventory accuracy is a KPI that customers are measuring anecdotally and it’s colouring their viewpoint on their shopping experience. Probably a good idea to actually measure and report on it properly, right?
If you’re doing a good job detecting and eliminating process defects that cause inaccurate inventory and continuously making corrections to erroneous records, then this should be reflected in your measurement counts over time. Who knows? If you can demonstrate a high level of accuracy on a continuously changing representative sample, maybe you can convince the Finance and Loss Prevention folks to do away with annual physical counts altogether.
Don’t build roadblocks out of assumptions. – Lorii Myers
Retailers are not properly managing the most important asset on their balance sheets – and it’s killing customer service.
I analyzed sample data from 3 retailers who do annual “wall to wall” physical counts. There were 898,526 count records in the sample across 92 stores. For each count record (active items only on the day of the count), the system on hand balance before the count was captured along with the physical quantity counted. The products in the sample include hardware, dry grocery, household consumables, sporting goods, basic apparel and all manner of specialty hardlines items. Each of the retailers report annual shrink percentages that are in line with industry averages.
A system inventory record is considered to be “accurate” if the system quantity is adjusted by less than +/- 5% after the physical count is taken. Here are the results:
So 54% of inventory records were accurate within a 5% tolerance on the day of the count. Not good, right?
It gets worse.
For 19% of the total records counted (that’s nearly 1 in every 5 item/locations), the adjustment changed the system quantity by 50% or more!
Wait, there’s more!
In addition, I calculated simple in-stock measures before and after the count as follows:
Reported In Stock: Percentage of records where the system on hand was >0 just before the count
Actual In Stock: Percentage of records where the counted quantity was >0 just after the count
Here are the results of that:
Let’s consider what that means for a moment. If you ran an in-stock report based on the system on hand just before those records were counted, you would think that you’re at 94%. Not world class, but certainly not bad. However, once the lie is exposed on that very same day, you realize that the true in-stock (the one your customer sees) is 5% lower than what you’ve been telling yourself.
Sure, this is a specific point in time and we don’t know how long it took the inventory accuracy to degrade up for each item/location, but how can you ever look at an in-stock report the same way again?
Further, when you look at it store by store, it’s clear that stores with higher levels of inventory accuracy experience a lesser drop in in-stock after the records are counted. Each of the blue dots on the scatterplot below represent one of the 92 stores in the sample:
A couple of outliers notwithstanding, it’s clear that the higher on hand accuracy is, the more truthful the in-stock measure is and vice-versa.
Now let’s do some simple math. A number of studies have consistently shown that an out-of-stock results in a lost sale for the retailer about 1/3 of the time. Assuming the 5% differential between reported and actual in-stock is structural, this means that having inaccurate inventory records could be costing retailers 1.67% of their topline sales. This is in addition to the cost of shrink.
So, a billion dollar retailer could be losing almost $17 million per year in sales just because of inaccurate on hands and nothing else.
Let’s be clear, this isn’t like forecast accuracy where you are trying to predict an unknown future. And it’s not like the myriad potential flow problems that can arise and prevent product from getting to the stores to meet customer demands. It is an erosion in sales caused by the inability to properly keep records of assets that are currently observable in the physical world.
“That can’t possibly be. Our shrink numbers are below industry average.”
To that, I ask two related questions:
Who gives a shit about industry averages?
What about your customers?
In addition to the potential sales loss, inaccurate on hands can piss customers off in many other ways. For example, if it hasn’t happened already, it won’t be long until you’re forced by competition to publish your store on hand balances on your website. What if a customer makes a trip to the store or schedules a pickup order based on this information?
The point here is that shrink is a financial measure, on hand accuracy is a customer service measure. Don’t assume that “we have low shrink” means the same thing as “our inventory management practices are under control”.
Red Herring #2: It Must Have Been Theft
It’s true that shoplifting and employee theft is a problem that is unlikely to be completely solved. Maybe one day item level RFID tagging will become ubiquitous and make it difficult for product to leave the store without being detected. In the meantime, there’s a limit to what can be done to prevent theft without either severely inconveniencing customers or going bankrupt.
But are we absolutely sure that the majority of inventory shrinkage is caused by theft? Using the count records mentioned earlier, here is another slice showing how the adjustments were made:
From the second column of this table, you can see that for 29% of all the count transactions, the system inventory balances were decreased by at least 1 unit after the count.
Think about that next time you’re walking the aisles in a store. If you assume that theft is the primary cause for negative adjustments, then by extension you must also believe that one out of every 3 unique items you see on the shelves will be stolen by someone at least once in the course of a year – and it could be higher than that if an “accurate” record on the day of the count was negatively adjusted at other times throughout the year. I mean, maybe… seems a bit much, though, don’t you think?
Now let’s look at the first column (count adjustments that increase the inventory balance). If you assume that all of the inventory decreases were theft, then – using the same logic – you must also believe that for one out of every 5 unique items, someone is sneaking product into the store and leaving it on the shelves. I mean, come on.
Perhaps there’s more than theft going on here.
Red Herring #3: The Problem Is Just Too Big
Yes, it goes without saying that when you multiply out the number of products and locations in retail, you get a large number of individual inventory balances – it can easily get into the millions for a medium to large sized retailer. “There’s no way that we can keep that many inventory pools accurate on a daily basis” the argument goes.
But the flaw in this thinking stems from the (unfortunately quite popular) notion that the only way to keep inventory records accurate is through counting and correcting. The problem with this approach (besides being highly labour intensive, inefficient and prone to error) is that it corrects errors that have already happened and does not address whatever process deficiencies caused the error in the first place.
This is akin to a car manufacturer noticing that every vehicle rolling off the assembly line has a scratch on the left front fender. Instead of tracing back through the line to see where the scratch is occurring, they instead just add another station at the end with a full time employee whose job it is to buff the scratch out of each and every car.
The problem is not about the large number of inventory pools, it’s about the small number of processes that change the inventory balances. To the extent that inventory movements in the physical world are not being matched with proper system transactions, a small number of process defects have the potential to impact all inventory records.
When your store inventory records don’t match the physical stock on hand, it must necessarily be a result of one of the following processes:
Receiving: Is every carton being scanned into the store’s inventory? Do you “blind receive” shipments from DCs or suppliers that have not demonstrated high levels of picking accuracy for the sake of speed?
POS Scanning and Saleable Returns: Do cashiers scan each and every individual item off the belt or do they sometimes use the mult key for efficiency? If an item is missing a bar code and must be keyed under a dummy product number, is there a process to record those circumstances to correct the inventory later?
Damage and Waste: Whenever a product is found damaged or expired, is it scanned out of the on hand on a nightly basis?
Store Use, Transformations, Transfers: If a product taken from the shelf to use within the store (e.g. paper towels to clean up a mess) or used as a raw material for another product (e.g. flour taken from the pantry aisle to use in the bakery) are they stock adjusted out? Are store-to-store transfers or DC returns scanned out of the store’s inventory correctly before they leave?
Counting: Before a stock record is changed because of a count, are people making sure that they’ve located and counted all units of that product within the store or do they just “pencil whip” based on what they see in front of them and move on?
Theft: Are there more things that can be done within the store to minimize theft? Do you actively “transact” some of your theft when you find empty packaging in the aisle?
So how can retailers finally make a permanent improvement to the accuracy of their store on hands?
They need to actually care about it (losing 1-2% of top line sales should be a strong motivator)
They need to measure store on hand accuracy as a KPI
They need an approach whereby process failures that cause on hand errors can be detected and addressed
They need an efficient approach for finding and correcting discrepancies as the process issues are being fixed
The real question is: Why is this such a pervasive problem?
I think I may have the answer: Nobody cares.
Okay, maybe that’s a little harsh. It’s probably more fair to say that there is a long list of things that retailers care about more than the accuracy of their on hands.
I’m not being judgmental, nor am I trying to invoke shame. I’m just making a dispassionate observation based on 25 years experience working in retail.
Whatever you think of the axiom “what gets measured gets managed” (NOT a quote from Peter Drucker), I would argue that it is largely true.
By that yardstick, I have yet to come across a single retailer who routinely measures the accuracy of their on hands as a KPI, even though – if you think about it – it wouldn’t be that difficult to do. Just send out a count list of a random sample of SKUs each month to every store and have them do a detailed count. Either the system record matches what’s physically there or it doesn’t.
Measuring forecast accuracy (the ability to predict an unknown future) seems to take up a lot more time and attention than inventory accuracy (the ability to keep a stock record in synch with a quantity that exists in the physical world right now), but the accuracy of on hand records has a much greater influence on the customer experience than forecast accuracy – by a very wide margin.
And on hand accuracy will only become more important as retailers expand customer delivery options to include click and collect and ship from store. Even “old school” shoppers (those who just want to go to the store to buy something and leave) will be expecting to check online to see how much a store has in stock before getting in their cars.
It’s quite clear that retailers should care about this more, so why don’t they?
Conflating Accuracy and Shrink
After a physical stock count, positive and negative on hand variances are costed and summed up. If the value of the system on hand drops by less than 2% of sales after the count adjustments are made, this is deemed to be a good result when compared to the industry as a whole. The conclusion is drawn that the management of inventory must therefore be under control and that on hand records must not be that far off. The problem with shrink is that the positive and negative errors can still be large in magnitude, but they cancel each other out, thereby hiding significant issues with on hand record accuracy (by item/location, which is what the customer cares about). Shrink is a measure for accountants, not customers.
Store Replenishment is Manual Anyhow
It’s still common practice for many retailers to use visual shelf reviews for store replenishment. Department managers walk through the aisles with RF scanning guns, scan the shelf tags for items they want to order and use an app on the gun to place replenishment orders. Most often, this process is used when perpetual inventory capabilities don’t exist at store level, but it’s not uncommon to see it also being used even if stores have system calculated on hand balances. Why? Because there isn’t enough trust in the accuracy of the on hands to use them for automated replenishment. Hmmm…
It’s Perceived to be an Overwhelming Problem
It’s certainly true that the number of item/store inventory pools that need to be kept accurate can get quite large. The predominant thinking in retail is that the only way to make inventory records more accurate is to count each item more frequently. Do the math on that and many retailers conclude that the labour costs to maintain accurate inventory records will drive them into bankruptcy.
The problem with this viewpoint is that frequent counting and correcting isn’t really maintaining accurate records – it’s continuously fixing inaccurate records. A different way to look at it is not by the sheer volume of item/location records to be managed, but rather by the number of potential process failure points that could affect any given item in any given location.
Think about an auto assembly line where every finished car that rolls off has a 2 inch scratch on the right front fender. One option to address this problem is to set up an additional station at the end of the line to buff out the scratch on every single car that rolls through. This is analogous to the “count and correct” approach to managing inventory records – highly labour intensive and only addresses the problem after it has already occurred.
Another option would be to trace back through the process until you find the where the scratch is occurring and why. Maybe there’s a bolt sticking out from a pass-through point that’s causing the scratch. Cut off the end of the bolt, no more scratches. Addressing this one point of process failure permanently resolves the root cause of the defect for every car that passes through the process.
Going back to our store on hand accuracy example, a retailer may have thousands or millions of item/store combinations, but the number of processes (potential points of failure) that change on hand balances is limited:
Stock writedowns for damage or waste
Sales and saleable returns
For retailers who have implemented store perpetual inventory, each of these processes that affect the movement of physical stock have a corresponding transaction that changes the on hand balance accordingly. How carefully are those transactions being recorded for accuracy (versus speed)?
Are DC shipments regularly audited for accuracy? Do stores “blind receive” shipments only from highly reliable sources? Are there nightly procedures to scan out damaged or unsaleable goods? Is the store well organized so that all units of a particular item can be easily found before a physical count is done? is every sale being properly scanned at the checkout?
Of course, the elephant (or maybe scapegoat?) in the room is theft. After all, there is no corresponding transaction for those stock movements. While there are certainly things that can be done to reduce theft, I consider it to be a self evident fact that it won’t be eliminated completely anytime soon.
But before you assume that every negative stock adjustment “must have been theft”, are you totally certain that all of the other processes are being transacted properly?
Does it seem reasonable to assume that for every single unique product whose on hand balance decreases after a physical count (typically 20-30% of all products in a store) all of those units were stolen since the last count?
And if we do assume that theft is the culprit in the vast majority of those cases, then what are we to assume about products whose on hand balances increase after being counted (typically 10-20% of all products in a store)? Are customers or employees sneaking items into the store, leaving them on the shelves and secretly leaving without being detected?
Setting theft aside, there’s still plenty that can be done by thoroughly examining and addressing the potential points of process failure that cause on hands to become inaccurate in the first place, while at the same time reducing the amount of time and money being spent on “counting and correcting”.
Good intentions can often lead to unintended consequences. – Tim Walberg
Retailers with brick and mortar operations are always trying to keep the checkout lines moving and get customers out the door as quickly as possible. Many collect time stamps on their sales transactions in order to measure and reward their cashiers based on how quickly they can scan.
Similarly, being able to receive quickly at the back of the store is seen as critical to customer service – product only sells off the shelf, not from the receiving bay or the back of a truck.
This focus on speed has led to many in-store transactional “efficiencies”:
If a customer puts 12 cans of frozen concentrated juice on the belt, a cashier may scan the first one and use the multiplier key to add the other 11 to the bill all at once.
If a product doesn’t scan properly or is missing the UPC code, just ask the customer for the price and key the sale under a “miscellaneous” SKU or a similar item with the same price, rather than calling for a time consuming code check.
If a shipment arrives in the receiving bay, just scan the waybill instead of each individual case and get the product to the floor.
These time saving measures can certainly delight “the customer of this moment”, but there can also be consequences.
In the “mult key” example, the 12 cans scanned could be across 6 different flavours of juice. The customer may not care since they’re paying the same price, but the inventory records for 6 different SKUs have just been fouled up for the sake of saving a few seconds. To the extent that the system on hand balances are used to make automated replenishment decisions, this one action could be inconveniencing countless customers for several more days, weeks or even months before the lie is exposed.
The smile on a customer’s face because you saved her 5 seconds at the checkout or the cashier speed rankings board in the break room might be tangible signs of “great customer service”, but the not-so-easy-to-see costs of stockouts and lost sales that arise from this practice over time is extremely costly.
Similarly with skipping code checks or “pencil whipping” back door receipts. Is sacrificing accuracy for the sake of speed really good customer service policy?
“A lack of open checkouts and crowded aisles may be annoying to grocery shoppers, but their biggest frustration is finding a desired product is out of stock, according to new research from Field Agent.”
According to the article, out of stocks are costing Canadian grocers $63 billion per year in sales. While better store level planning and replenishment can drive system reported in-stocks close to 100%, the benefits are muted if the replenishment system thinks the store has 5 units when they actually have none.
Not only does this affect the experience of a walk-in customer looking at an empty shelf, but it’s actually even more serious in an omnichannel world where the expectation is that retailers will publish store inventories on their public websites (gulp!). An empty shelf is one thing, but publishing an inaccurate on hand on your website is tantamount to lying right to your customers’ faces.
We’ve seen firsthand that it’s not uncommon for retailers to have a store on hand accuracy percentage in the low 60s (meaning that almost 40% of the time, the system on hand record differs from the counted quantity by more than 5% at item/location level). Furthermore, we’ve found that on the day of an inventory count, the actual in stock is several points lower than the reported in stock on average.
Suffice it to say that inaccurate on hand records are a big part of the out of stocks problem.
Nothing I’ve said above is particularly revolutionary or insightful. The real question is why has it been allowed to continue?
In my view, there are 3 key reasons:
Most retailers conflate shrink with inventory accuracy and make the horribly, horribly mistaken assumption that if their financial shrink is below 1.5%, then their inventory management is under control. Shrink is a measure for accountants, not customers and the responsibility of store inventory management belongs in Store Operations, not Finance.
Nobody measures the accuracy of their on hands. It’s fine to measure the speed of transactions and the efficiency of store labour, but if you’re taking shortcuts to achieve those efficiencies, you should also be measuring the consequence of those actions – especially when the consequence so profoundly impacts the customer experience.
Retailers think that inaccurate store on hands is an intractable problem that’s impossible to economically solve. That was true for every identified problem in human history at one point. However, I do agree that if no action is taken to solve the problem because it is “impossible to solve”, then it will never be solved.
It’s true that overcoming inertia on this will not be easy.
Your customers’ expectations will continue to rise regardless.
Note that I’m not criticizing the survey itself. It’s a summary of collected thoughts and opinions of retail C-level executives (pretty evenly split among hardlines/softlines/grocery on the format dimension and large/medium/small on the size dimension), so by definition it can’t be “wrong”. I just found some of the responses to be revealing – and bewildering.
On the “makes sense” side of the ledger, the retail executives surveyed intend to significantly expand customer delivery options for purchases made online over the next 24 months, specifically:
79% plan to offer ship from store
80% plan to offer pick up in store
75% plan to offer delivery using third party services
However, the next part of the survey is where we start to see trouble (the title of this section is “Retailers Everywhere Aren’t Ready for the Anywhere Shelf”):
55% of retailers surveyed don’t have a single view of inventory across channels
78% of retailers surveyed don’t have a real-time view of inventory across channels
What’s worse is that there is no mention at all about inventory accuracy. I submit that the other 45% and 22% respectively may have inventory visibility capabilities, but are they certain that their store level inventory records are accurate? Do they actually measure store on hand accuracy (by item by location in units, which is what a customer sees) as a KPI?
The title of the next slide is “Customer Experience and Supply Chain Maturity Demands Edge Technologies”. Okay… Sure… I guess.
The slide after that concludes that retail C-suite executives believe that the top technologies “having the broadest business impact on productivity, operational efficiency and customer experience” are as follows:
#1 – Artificial Intelligence/Machine Learning
#2 – Connected Devices
#3 – Voice Recognition
Towards the end, it was revealed that “The C-suite is planning a 5X increase in artificial intelligence adoption over the next 2 years”. And that 50% of those executives see AI as an emerging technology that will have a significant impact on “sharpening inventory levels” (whatever that actually means).
So just to recap:
Over the next 2 years, retailers will be aggressively pursuing customer delivery options that place ever increasing importance on visibility and accuracy of store inventory.
A majority of retailers haven’t even met the visibility criteria and it’s highly unlikely that the ones who have are meeting the accuracy criteria (the second part is my assumption and I welcome being proved wrong on that).
Over the next 2 years, retailers intend to increase their investment in artificial intelligence technologies fivefold.
I’m reminded of the scene in Die Hard 2 (careful before you click – the language is not suitable for a work environment or if small children are nearby) where terrorists take over Dulles International Airport during a zero visibility snowstorm and crash a passenger jet simply by transmitting a false altitude reading to the cockpit of the plane.
Even in 1990, passenger aircraft were quite technologically advanced and loaded with systems that could meet the definition of “artificial intelligence“. What happens when one piece of critical data fed into the system is wrong? Catastrophe.
I need some help understanding the thought process here. How exactly will AI solve the inventory visibility/accuracy problem? Are we talking about every retailer having shelf scanning robots running around in every store 2 years from now? What does “sharpen inventory levels” mean and how is AI expected to achieve that (very nebulous sounding) goal?