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Out-Of-Stock Gaps In Retail: Is Technology The Answer?

Businesses today are empowered than ever before to curb OOS situations based on technologies that are progressively becoming an intrinsic part of business as usual.

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Be it a consumer or a retailer, everyone has faced out of stock obstacle. Unfortunately, today stock outs are a common occurrence that indeed terrifies the businesses. It won’t be incorrect to say that stock-out has become a dreaded word not only for consumers but also for consumer goods brands and retailers.

It’s a well-known fact that Out-of-Stock (OOS) situation impacts any retail business through lost sales. However, what is not so well recognized is the damage that extends far beyond sales. Stock-outs result in unsatisfactory customer experience and ultimately customer churn. At its worst, there is an impact on brand perception and brand value resulting in the loss of the brand’s goodwill.

OOS creates a vicious circle of hampering the customer experience which in turn leads to revenues losses for retailers and marketers. According to a research study conducted by EKN (in partnership with Microsoft) [SD1]when customers face an OOS situation, only 30% look for in-store substitutes whereas 70% move to a different store altogether. With the increased popularity of online stores and retailers, only 15% delay their purchase and there is a greater likelihood of them shifting to a different brand. Thus, for brands and retailers, the costs of stock-outs are high, in terms of loss of sales with the increase in declining customer satisfaction.

The research study further highlighted that sales loss from OOS accounts for 4% of total revenue leading to brand erosion, loss in sales opportunities and lowered impact of promotions. Customer and revenue loss along with operational and branding issues eventually leads to erosion of brand loyalty.

Bridging OOS gaps has always baffled brands and retailers for years, but it is imperative to take a step back and understand its occurrence. Out of stock gaps are majorly a result of inefficient data management due to inconsistent/ inappropriate records maintenance by vendors and retailers. Furthermore, miss-matched records with inaccurate demand forecasts and inappropriate shelf-space allocation, widens these gaps plaguing the entire retail cycle. Further leading to a downward spiral, OOS leads to lower return on investment on marketing activities making the companies hesitant towards investment in market creation and lead generation.

The biggest obstacle is measurement of the impact of these out of stock gaps. Failure in processes due to factors like poor refrigeration, employee inadequacies and inferior data systems affects the measurement systems at large. Moreover, reduced efficiency of supply chain due to higher time consumption in ordering and auditing the inventories deepens the stock outs.

Therefore, the task at hand for brands and retailers is to proactively plug out the various gaps that exist in ordering, updating and replenishing inventory for multi-channel, multi-site and multi-tier sales and distribution.

So, what’s the best way to address this?

Even a small percentage reduction in stock outs can impact revenue significantly. The focus today, must shift to reducing stock outs and imbalanced demand-supply. Retailers can take the first step by implementing real-time data centralization across the supply chain, which will enable them to keep records of inventory movement at all times.

It is no news today that customers today have a plethora of platforms to shop from and hence retailers are working relentlessly to create a seamless and unified experience. In this context, addressing OOS gaps assumes even more significance. It has become essential for retail businesses to develop inventory management strategies by integrating omni-channel demand influencing data (web, social, mobile and traditional) into the process of forecasting. This must be in line with the changing demand cycles and accordingly, inventory plans must be reconstructed and reorganized. With the emerging technologies, retailers first and foremost, must implement a mobile-first strategy for the workforce on the field. Analytics for real time shelf image and stock-outs powered by cloud-based platforms and applications will ultimately help reduce the stock-out incidences. Over a period of time, tactics like increased adoption of real-time combined platforms and social media for enhanced communication with trading partners have also proved useful to reduce stock-out rates. 

Use of IoT data to provide digital location-based offers along with technologies and analytics for auditing out-of-stock items and other misplaced or wrongly priced items can secure the retailers and suppliers beforehand.

For the workforce, organizations should implement technologies like voice-controlled and Wi-Fi-enabled wearable devices providing seamless request and respond communication amongst the field workforce, third parties and other partners. This will streamline the operations of the retail business and minimize OOS gaps.

And most importantly, to stay ahead of the curve, they must prepare budgets for pilot projects involving intelligent high-tech solutions. Projects incorporating the use of drones, video intelligence and robotics to identify and generate real time alerts about the stock-outs should be encouraged. The collected data and analytics can go out to distribution centers and inventory management teams for enhanced and improved administration,

Businesses today are empowered than ever before to curb OOS situations based on technologies that are progressively becoming an intrinsic part of business as usual. With the help of evolving technology and the widespread availability of information sharing, businesses have an opportunity to escape the web of OOS. Now that surely is reason enough to bridge the OOS gap? And yes, technology is certainly a big part of the answer.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Samik Roy

The author is Country Head, (Modern Workplace), Microsoft India

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