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 cashiers according to how quickly they can scan.
At the back of the store, speedy retail receiving is seen as a critical component of good customer service—after all, products only sell from the shelf, not from the receiving bay or the back of a truck.
This focus on speed has led many stores to look for ways to boost transactional efficiencies:
- If a customer puts 12 cans of frozen concentrated juice on the belt, a cashier may scan the first one, then 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 its UPC code, cashiers ask the customer for its price and key the sale under a “miscellaneous” SKU—or code it as a similar item with the same price—rather than calling for a time-consuming code check.
- If a shipment arrives in the receiving bay, receivers 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.” They can also have devastating consequences.
What if those 12 cans of concentrate included 6 different flavors of juice? Your customer may not care if they are paying the same price, but by using the multiplier key, you’ve fouled up your inventory records for 6 different SKUs for the sake of saving a few seconds. To the extent that you’re using system on-hand balances to make automated replenishment decisions, this one action could inconvenience dozens of customers for several more days, weeks, or even months before the lie is exposed.
The real cost of out-of-stocks
It’s easy to see the smile on a customer’s face because you saved her 5 seconds at checkout—or to be impressed with the cashier speed rankings board in your break room. It’s not so easy to see how costly the stockouts and lost sales that arise from this practice are over time.
The situation is similar when you skip code checks or “pencil whip” your back-door receipts. Is sacrificing accuracy for the sake of speed really an effective customer service policy?
The service/speed trade-off becomes especially poignant when you consider what a recent article in Canadian Grocer magazine pointed out:
“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. Meanwhile, an IHL survey suggests that over 24% of Amazon’s retail revenue comes from consumers who first tried to buy the product at their local stores. 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 it actually has none.
This doesn’t just affect the experience of your walk-in customers. It’s more serious in an omnichannel world, where the expectation is that retailers will publish store inventories on their public websites (gulp!). It’s one thing to walk in and see an empty shelf. But publishing inaccurate on-hands on your website amounts to lying to your customers’ faces.
My business partner, Mike Doherty, and I have seen firsthand that it’s not uncommon for retailers to have a store on-hand accuracy rate in the low 60s. That means that almost 40% of the time, the system on-hand record differs from the counted quantity by more than 5% at the 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. 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 labor, but if you’re taking shortcuts to achieve those efficiencies, you should also be measuring the consequence of those actions—especially when they have such a profound impact on the customer experience.
- Retailers think that maintaining accurate store on-hands is an intractable problem that’s impossible to solve economically. That’s been true of every identified problem in human history at one point or another. Of course, if no action is taken to solve the problem because it’s “impossible to solve,” then it will never be solved.
It won’t be easy to overcome inertia on this issue.
Keep in mind, though, that your customers’ expectations will continue to rise regardless.
This article first appeared at Demand Clarity.
Jeff Harrop is an independent consultant who helps retail clients and their suppliers integrate their supply chain, planning all inventory, capacities, and resources with a single set of numbers. With his business partner, Mike Doherty, he's co-founder of Demand Clarity and co-author of Flowcasting the Retail Supply Chain.