One of the great challenges of retail logistics is ensuring full shelves in stores. Since gaps on retail shelves are a daily occurrence, there is a need for new and effective solutions in the supply chain and in-store logistics to improve product availability. In particular, the lack of high-turnover products, such as beverages and bread, at the moment a customer wants to buy such a product, can trigger negative reactions from the customer, such as leaving the store, and consequently lead to lower turnover. And yet, even if a product is not available for sale in its place on the shelf, it may still be in the warehouse. However, such practices cause high capital costs, increase risk, and burden retail performance.
Until now, the retail industry has not paid attention to what time of day customers reach for which products. And yet, this issue is key to a logistics concept based on the cyclically recurring demand pattern in stores throughout the day. We propose a new concept based on adjusting product availability to demand, thanks to which retailers and consumer goods manufacturers can increase turnover and ensure customer loyalty, which we will explain below using the example of a Japanese retailer.
The basis of the concept based on adjusting product availability to demand is the integration of the changing intensity of customer demand throughout the day with ordering and supply processes in retail. Store managers must understand at what time there is demand for which products. For ensuring the availability of products at the time when customers want to buy them allows customers to make full purchases.
The goal of the concept based on adjusting product availability to demand is to avoid the negative impact caused by gaps on retail shelves on customer loyalty, store turnover, and manufacturers, without a significant increase in costs associated with warehouse stocks and additional personnel.
This concept is based on knowledge of cyclically changing customer demand. For example, customers buy some products only in the morning, and other products especially in the afternoon hours. Seasonality of sales in the form of variable demand structures in summer and winter is already taken into account. This can be seen at occasional stands, for example at the beginning of the school year or for Christmas. However, what the demand pattern for a given product looks like during the day is a great unknown for most of the retail trade.
However, it is precisely from such knowledge that important conclusions can be drawn for store and supply chain management. If the demand for a given product or category of products with cyclical demand peaks, it is necessary to ensure full shelves at that very time, which will contribute to an increase in retail turnover. In contrast, ensuring maximum product availability during periods of low demand is not economical (Figure 1).
Those parts of the assortment that have cyclical demand during the day are best suited for introducing the new concept. For example, periods of low demand can be used by store employees to fill gaps on shelves so that during peak demand hours the shelves are full and employees can concentrate on customer service. Consumer goods manufacturers can support the implementation of the concept based on cyclical demand by offering cooperation on minimum order quantities, packaging sizes, and delivery times. In this way, manufacturers also ensure access to their products during periods of highest demand and strengthen customer loyalty to their products and retail brands.
Seven-Eleven is a retail chain that, through a supply chain tailored to customer needs, is able to offer an assortment that changes over time. Over the last 35 years, Seven-Eleven has opened an average of 1,000 new branches worldwide annually. Seven-Eleven stores have a characteristic small area (only 100 sq. m.), which was an important reason for introducing an assortment that changes over time. In this way, each Seven-Eleven branch is able to offer up to 2,500 different products throughout the day.
The article comes from the magazine “Logistyka” 6/2010.