SCDigest: Warehouse Management to the Rescue for Retail Out-of-Stocks?
By Dan Gilmore, Editor-in-Chief, Supply Chain Digest
Consumer goods manufacturers and retailers have been chasing the out-of-stock problem for decades, the latest iteration being RFID.
Studies have shown, especially in the mass merchandise and grocery sectors, that a high percentage of the time, the item for which an out-of-stock exists on the shelf is available in back room inventory, but hasn’t made it to the floor.
This problem, I believe, could potentially be well addressed with a form of warehouse management system (WMS) tailored for a retail setting. Specifically, this would happen through use of one of the core capabilities of a WMS — the task management system.
There is already use of a form of task management in some retail workforce scheduling applications today. But that is at a very high level — blocks of work, like "price ticketing" or "cycle counting."
A true WMS task engine operates at a very granular task level — e.g., this SKU in this forward pick location needs to be replenished, because it has fallen below the minimum set for that location. A work "queue" of dozens or even hundreds of these tasks is managed by the WMS task engine, which doles them out to workers via commands to wireless terminals of some kind, based on who has permission to do the task, the task priority, the operator’s location, etc. The operator confirms through scanning or other means that the task was complete, and immediately receives another.
Why couldn’t this same approach work for shelf level "replenishment"?
What it would take is:
- A perpetual inventory (PI) system at the store level (largely in place)
- A basic inventory location system in the back room (sometimes in place, but easy to create)
- Wireless terminals (largely in place, almost always underutilized)
- The task management engine, integrated with the other pieces (or maybe all from one source).
Retailer Target said early on in the RFID saga that it has a light form of this — its system generates a type of "pick list" for shelf replenishment, based on POS. But that is a paper-based system, and not really capable of dealing at a specific task level (or so I think — haven’t really seen it).
Pretty simple — the PI says a location needs replenished (at whatever level is set for that SKU), and a specific task is set for the move. It goes into the queue, and is prioritized based on other variables (just for example, perhaps high-margin items generally go to the top of the queue); if more units of that SKU are sold, meaning it is increasingly in danger of going to zero at the shelf, the task rises in the queue.
Stock personnel don’t have to wonder what to do — their terminal tells them exactly what to do, and they confirm it is done electronically.
Yes, PI accuracy could be an issue, but this would have the effect of greatly improving that accuracy.
There is more than I have room for here, but shouldn’t more retailers be looking at this? Couldn’t we take a big chunk out of the overstock problem at shelf right away, without a whole other industry program that never seems to work?
Discussion Questions: Can warehouse management systems significantly solve retail out-of-stocks? How does and doesn’t this technology apply to restocking issues at the retail level?
The biggest issue with this concept is Dan Gilmore’s second requirement. Most retail backrooms were downsized long ago as a way to control build up of excessive inventory and to reduce operating costs. No room for such a location system, until case-level RFID becomes universal.
The interpretation of the finding from several OOS studies bothers me a bit too. If the replenishment inventory arrives before the stock crew, the solution can be found in the existing systems and procedures. If it is still on a stretch-wrapped pallet, most retailers would hesitate to dig it out. They need to retain the pallet’s integrity until it moves to the next staging area.
Which brings us back to the first point. Today’s smart operators have gone back to the future a bit. They have enough backroom space to break inbound pallets and to store high volume items in an organized fashion for shelf replenishment between deliveries.
Well…the biggest issue with the piece is it’s not exactly right.
Task management systems are indeed suited to very granular types of transactions, including out of stocks. It’s all about business intelligence on the back end passing tasks to the engine and then delivering those tasks to the appropriate parties.
Having said that, I believe the biggest opportunity for item level RFID is not so much in grocery and on cases and pallets, but on items in general merchandise, and perhaps most especially in apparel.
The reason is – there’s a tangible and quantifiable pool of money just waiting to be saved – the money GMA retailers spend on physical inventories to true-up their perpetual inventory records. It’s real, and it’s a big number.
Just as bar-code and locator systems gave retailers the opportunity to eliminate year-end physical inventories in distribution centers, RFID and planograms promise to eliminate those same inventories in stores. You still have to manage receipt cut-offs but the opportunty is pretty staggering. Ask any retailer how much he/she spends on PI’s every year. There’s the return…finding misplaced product and reducing out of stocks is an exciting additional opportunity, but probably not even necessary to justify the investment.
The biggest shame about the Walmart RFID in the supply chain focus is it caused the industry to lose focus on this real and pervasive opportunity.
RFID is too expensive. Proven over and over, and it is not close to a complete solution.
WMS and TM/EM systems have been in place for quite a while. They have had literally no impact….for good reason. The signaling necessary to identify true OOS must be generated and all current technologies except for the ShelfMeter system from ferveotech (recently tested in stores) do not have the ability to identify OOS real time.
WMS simply don’t work without accurate inventory, so this is not the solution. No retailer has ever kept control of the back room. In one retailer we racked and slotted the backroom and still lost control over time – the same as what happens with shelf sets. First, fix the item space allocation. With large stores there should be room for full case replenishment. Forget store inventory and use POS as the driver. What inventory information that is required is back room. It does not have to be unit detail – only full and/or partial cases. When unit sales reach some percentage of a case (varies by item) and there is confirmed backroom stock, then direct re-stocking. Solve the problem not the world.
As the other comments allow, this is part of a system. Whatever technology RFID or other as well as WMS needs to be implemented along with forecasting. This last one is the overall key to inventory. VMI also can help if retailers actually allow it to happen. One of the key problems beyond poor execution (!) is mixed responsibility. As long as inventory levels are a hot potato passed back and forth from vendor to retailer there will continue to be stock level issues both high and low. This gap only leads to argument over compliance fees rather than a complete solution. Even at WMT we see that they take inventory decisions that may well impact overall fill levels and against the advice of the vendors responsible for keeping levels proper. This is a conflict in execution and will result in more stockouts.
Making forecasting transparent and defining responsibility can and will improve inventory levels on both ends. WMS, demand forecasting systems, shelf level RFID are all part of it, but it is not just a technical problem.
All the information needed to solve the OOS problems exists today. However, three things must happen.
First, the information must be integrated into ONE system.
Second, all of those who are responsible for inventories throughout the system must have the same objectives. For example, you can not have buyers responsible for OOS, while their director is responsible for keeping inventory levels low.
Third, the prompts generated by the system must be actionable. If the store is prompted to fill-in a product, but nobody is available to do it, there inevitably will be OOS.
Everybody has hit on it, but no one has come out and said that the big difference between managing store inventories and all others is presentation stock – how much inventory must be on the shelf to give an item its proper merchandising exposure. That comes from good planogramming.
Once the shelf allocation is determined, you don’t really need a sophisticated inventory system to reduce OOS. By simply using the sales data from POS, it is easy to know when an item requires replenishment. Any inventory beyond the amount on shelf must be in the back room. Easy enough to build the pick list and when the item is replenished, the stocker checks the on hand in the system for any items without presentation stock (assuming the inventory is wrong because the presentation stock is gone, but this might also be a very fast moving item).
But none of this addresses the real issue, which is that 70 to 80 percent of the OOS is caused by sale items. These items did not have adequate shelf space allocated in the first place. By increasing the presentation stock and the shelf space allocated to sale items and putting in place procedures to review the sale items between normal replenishment cycles much of the OOS could be addressed.
(BTW, no approach that relies solely on automation addresses the “buggy factor” until you can monitor the shelf at the item level. This is still too costly.)
What’s an out-of-stock? Is it out of stock inside the four walls of the store? Or, is it out of stock on the shelf and unavailable to the customer? Two different things, of course, but the later is the most important.
From my view to solve the warehouse connection it requires total data synchronization. That rarely is the case where there is total integration from WMS to POS. There are two completely different languages spoken generally between the two systems with respect to items and substitutions related to brand sizing, bonus packs, etc, as well that cause issues making the out of stock issue more complicated.
The problem, as always, is the data, the data, and the data.
Solving that with disparate systems and requirements is the tough, tough, issue.
At store level, perpetual inventory and computer automated ordering has substantial impact on reducing out of stocks. The results of these systems implementation is dramatic. Making the connection all the way back through the supply chain is the challenge.
Nevertheless, defining an out-of-stock as what is available for sale at the point of purchase to the customer should be the rule. However, measuring that through automation is a challenge when PI levels indicate only that the product exists within the four walls.
I know this won’t be a popular comment, but these responses in general I think support my position.
That retailers are incapable of keeping track of back room inventory is simply a failure of process, technology and will. Having a mind set that it can’t be done is of course a self-fulfilling prophecy.
What the respondents seem to miss is that this incredibly simply back room inventory control combined with POS data could increase the accuracy of store-level PI easily.
It’s time for “in-store logistics” folks. Those that get it first will reap big benefits.