BrainTrust Query: What Constitutes Compliance?
Commentary by James Tenser, Principal, V•S•N Strategies
Through
a special arrangement, presented here for discussion is a summary of a current
article from the Tenser’s Tirades blog.
In my role as director
of the In-Store Implementation Network, the challenge of merchandising compliance
is frequently addressed, from a variety of perspectives — both theoretical
and solution-oriented.
Several recent conversations have centered on the question
of measuring the accuracy of a shelf set; that is, its degree of compliance
with the schematic or planogram.
So when do retailers declare a merchandise
set to be “out of compliance”?
When nine percent of items are out of stock (the industry average in grocery)?
When 15 percent of items are present but mis-located? When the number of facings
is off on more than 25 percent of items? Alternatively, what criteria define “in
compliance”? All items present and accounted for? When 90 percent of items
in the correct place? When 99 percent in-stock? How close is close enough?
This
is actually a non-trivial matter when seeking a practical solution. Since a
planogram is a complex tool covering many details (items, facings, positioning,
quantities, etc.), determining what data to measure, how often and to what
end(s) requires a thoughtful process.
Evidently, the ways a planogram can go wrong
are numerous but not always numerical. More significantly, they are not easily
recognized by human inspection. That is, compliance issues can be hard to spot
without a scorecard in hand — and even then it takes concentration and focus
and time.
What if we could define a short-hand method instead — perhaps three
to six yes/no metrics that could be taken as a proxy for overall compliance?
The late Larry Dorr, most recently of BDS Marketing (and a giant of this area
of business practice), recently described an approach that is worthy of discussion.
He
proposed measuring the condition of approximately five or six “destination” items
for each category or major subcategory. These are often the highest-velocity
items in their respective sections. “Measure the items adjacent to those
items,” he said. “If those five and their adjacencies are in correct
shape, then the set is probably in good shape overall. If two of the five items
are off, you may assume a compliance problem.”
This approach offers economy,
speed and ease of implementation. A limitation, he concedes, it that this doesn’t
provide a measure of item distribution. While the five-item rule may deliver
a directionally correct conclusion about planogram compliance, it may not help
very much with gauging the performance of non-destination items.
Also worth
noting is how the criteria for compliance may vary across different product
categories and classes of trade.
So let’s grant that merchandising compliance
is a slippery quantity using presently available methods. That doesn’t absolve
practitioners from the requirement that they track and measure merchandising
performance. In fact, innovation in Shopper Marketing, segmentation and automated
planograms only intensify the need.
Discussion Questions: What criteria define planogram or schematic compliance?
How should they be measured or scored? What are the thresholds?
If this is an important question (and I’m accepting that point), then maybe as big or a bigger question is why there is not compliance? Ignore out-of-stocks in this; I think that’s a different issue than compliance. I’m wondering if store managers don’t care, if those setting the shelves don’t care, if the planograms are too hard to follow, if the planograms don’t match the fixture size? If non-compliance, ex-OOS is a serious issue, how you measure it may not be as relevant as how you fix it or keep it from happening.
Everyone deserves good metrics on job performance. Without the feedback provided by a good measuring system, the employee is left in the dark; the location is (supposedly) missing its gross profit dollar potential because of its improper assortment, and may also be missing operating objectives because it is restocking to suboptimal shelf allocations.
Having said all that, too often the planogram and the real world simply do not match. This means the reset crew has to make on the spot decisions about “that pole in the middle of the section.” So, even before the reset crew has left the store, the planogram is out of compliance. By measuring the store against an impossible goal, all we’ve done is reinforce store personnel’s stereotype of the “suits.” Ideally, and I guess now some chains have this, each planogram must be unique to the location so compliance can actually be achieved.
Ultimately, this is another area for electronic shelf displays to help with communication. This is where the two inch wide and four foot long electronic shelf edge display comes in handy. It allows the item display to be automatically shifted along the shelf edge. The reset crew can leave the store with a customized planogram that does accommodate the pole in the aisle. The automatic update of the shelf edge when items are added or deleted and as inventory levels change the facings required, makes the planogram a dynamic enabler for the restock crew. Compliance becomes a no brainer.
Merchandise compliance is always an animated discussion, although, in my experience, usually misfocused. Typically, the discussion is on how well the stores group execute the centrally-developed POG, with a host of Yes/No questions–are all the items in the right place? Are they in stock? Are the adjacencies correct? Etc., etc. This presumes quite a lot–the items are the best mix for each store’s demographic, there is sufficient shelf space for all the items in the POG, there is an exit strategy for discontinued items in all stores, there is sufficient store staffing level to execute the POG, and so on.
In my experience, the biggest challenge is connecting the reality of the individual store variances with the POG. This pesky reality has to be addressed before measuring level of execution in a store. The retailers that I’ve seen do this well are those that focus almost exclusively on key items, provide authority (and accountability) to store management to respond to local needs, include store management in assortment decision-making, and use shared performance metrics between stores and central merchants.
Compliance is heavily tied to sales volume and seasonality and thus relative. Compliance issues with the shoe polish shelf? Sure…I’ll get to it. Compliance issues with the candy aisle the week before Halloween? Drop what you are doing and make sure you’re 100% compliant there. As far as choosing a compliance benchmark, I think that 100% compliance is realistic to measure and report provided the measuring and reporting are both done on an exception basis. Don’t tell me what’s compliant, tell me what’s not, how much and when (and get the right tools to help you).
We’ve built our entire business around compliance (although by no means planogram compliance only, in fact we tend to get more interest from customers on measuring compliance with seasonal programs, operational standards and best practices) and so have other competitors in this space. Most retailers realize that non-compliance is expensive, needlessly expensive. Compliance increases sales, margins and the ROI on seasonal and in-store merchandising programs.
Goggle Goggles and Localization.
This brings to mind my early training at Macy’s. As a floor manager, it was my job to interpret the planograms and make them work for my business. As a buyer, I visited every store (I know, those were the days) and worked with the floor manager to make sure my merchandise “complied.”
I know department stores are not grocery, but more and more we are moving toward localization. That is, tailoring assortments to the customer of that store or region. The idea of a singular planogram that needs compliance seems antiquated albeit operationally necessary.
I’ve been playing with Google Goggles–the visual search application. I wonder if there isn’t a way to develop an algorithm that measures the installed floor set against the ideal? This could be centrally managed but locally connected.
At ConsumerX, we look at everything from the consumers’ perspective. They (we)expect basics–in stock, engaging value propositions, ease of purchase. Centralized planning is powerful, but it may be time to train in-store staff to interpret, know their customers and, yes, be creative.
Some excellent thoughts here. Thanks to all for wrestling with this non-trivial set of issues. At-retail compliance is a core business imperative with innumerable variables that require continuous monitoring. Practicality demands that we define pared-down methods that collect just enough relevant status information using no more resources than necessary.
In my view the In-Store Implementation discussion leads us to relentlessly seek out successful practices and embed them in everyday process. Keep sharing, please.