Studies show that retail loses 3.9% of turnover every year due to missing products on retail shelves. Consumer goods manufacturers in the European Union lose approximately 11.4 billion PLN annually for the same reason. Furthermore, gaps on retail shelves (Out-of-Stocks – OOS) also cause a loss of customer loyalty, as customers find only 90-95% of products ready for sale on store shelves. The occurrence of gaps on shelves depends on many factors, such as product turnover, product category, promotional campaigns, the size and location of the retail branch, as well as the time of purchase.
- stop shopping and go to another store
- buy a substitute product
– of a different brand
– in a different package size
– in a different product category
- postpone the purchase
- not buy the product at all (table 1).
Although these reactions differ from one another, they all have negative consequences for retail and manufacturers. Gaps on shelves cause dissatisfaction during shopping, reduce turnover for retail and manufacturers, and destroy customer loyalty. Customer reactions to OOS depend on many variables. These are criteria concerning the products themselves or product categories, the manufacturer’s brand, the store (for example, service and price level), the characteristics of the customer themselves (for example, age), and the purchase situation (for example, urgency of the purchase).
To effectively combat gaps on retail shelves, knowledge about the causes of their formation, the so-called root causes, is essential. Studies by the University of St. Gallen conducted in Switzerland and Germany show that 90% of gaps on shelves are caused in retail branches in the final meters from the shelf (figure 1). Studies in other countries confirm this result. Most gaps on shelves are caused by incorrect orders and untimely stocking of the product in its designated place on the shelf, even though the product is on the store premises, in the warehouse. Further studies also show that forecasting and employee problems are another cause of gaps on shelves.
The Department of Logistics at the University of St. Gallen faced the challenge of reducing gaps on shelves in a Swiss wholesale chain. The goal of the project was to improve logistics in its branches and achieve a partial reduction of OOS at minimal costs. To this end, the Department of Logistics, together with its client, developed a method for identifying gaps on shelves and recognizing the reasons for their formation (root causes). The availability of 500 selected products, accounting for 20% of the company’s turnover, was manually checked in three branches over 12 to 14 days. In the case of a product that was temporarily unavailable, the cause of the product’s absence from the shelf was investigated together with the branch management. For this purpose, a list of all possible root causes divided into 12 categories (for example, orders that were too small, delayed deliveries) was developed. Such an analysis enabled the identification of processes in the branches that have the greatest impact on causing gaps on shelves and – consequently – on preventing them.
Initial studies showed that gaps on shelves were caused by problems with orders, shelf replenishment, and issues with supplier orders. These three problems caused almost 90% of the gaps on shelves in the branches where the studies were conducted. Based on this knowledge, methods for improving product availability were developed. The results of their implementation were analyzed in three subsequent studies.
The article comes from the magazine “Logistyka” 5/2010.