What challenge(s) do our clients face?
The key indicator of any retail supply chain is out-of-stock inventory (OOS). This is an issue found at the forefront of retail challenges and one that continues to harm the profitability of companies everywhere as well as their customer experience.
Although discussions about out-of-stock (OOS) inventory are nothing new, we find they are increasingly important in today’s business environment.
- The global retail landscape has undergone dramatic changes in recent years – the acceleration of e-commerce; retailers striving to fulfill more orders for more items faster than ever before; and shoppers who buy fluidly across in-store and online channels are all established realities of today’s consumer environment
- Retailers are the last direct link to consumers – this proximity is both powerful and complex to manage. It creates an environment where availability and speed of reaction are key. Cycles are shorter and solutions must provide results fast. Retail is a fast-paced ‘by design’
- In a customer-centric and omnichannel environment, inventory availability is one of the key levers for seamless customer experience. To manage the flow of goods from suppliers to shelves, minimizing out-of-stock across the channels whilst keeping acceptable levels of inventory remains one of the greatest challenges for any retailer.
How do we help?
Retail is a complex and dynamic environment. We help our clients pick the right battles and move fast to address them, generating rapid and continuous results.
- Optimize replenishment strategies per category
- Managing OOS inventory effectively across multiple categories and product types often require a variety of strategies to be applied within a single retailer. However, many retailers apply similar, one-size-fits-all approaches to their categories, despite very different contexts.
- We pay close attention to your reality, tailoring our solutions to the specificities of each category’s ‘replenishment DNA’. For that, we assess the impact that different categories make on your company’s bottom line and identifying the strategies that are most important to your inventory assortment
- Create alignment across the organization
- Game-changing technologies are helping retailers both manage and reimagine the entire value chain. These technologies—and robust technical expertise—are critical components. However, based on engagements with our clients and supported by persistent global out-of-stock figures, we believe technologies alone don’t guarantee transformation: they require people to bring to life.
- The operational backbone starts in the Merchandising area and ends in Store Operation, and all the areas in-between need to be involved and to collaborate on the journey. We secure top-level sponsorship and work across areas, building commitment and alignment through engagement, change management, processes, shared KPIs, and rituals.
- Prioritize, act and generate results
- For companies dealing with tens or hundreds of thousands of SKUs, it is literally impossible to control everything at once, even with a clear understanding of category demands and replenishment strategies.
- We zero in on the biggest problems first, addressing the root causes for issues across categories. We then move fast from strategy through to execution to deliver results, always finetuning actions to match your specific context.
- Maintain control, consistency, and discipline
- Achievements in out-of-stock inventory rates can easily backslide as new initiatives, operational changes, or SKUs are introduced. We help you develop routines, strategies, and governance and train your team “on the job” to prepare them to sustain the new process; enabling you to maintain consistency and discipline and achieve long-term continuous improvement.
What are the benefits?
- -20% to -70% reduction in out-of-stock levels
- -15% to -40% inventory levels reduction, achieving a better balance of the capital invested in merchandising stocks
- -15% to 30% reduction in products write-off – especially important in perishables and produce categories
- Reduce mark-downs and increase margins and GMROI(1) – especially important on categories such as apparel or home appliances
- Reduction in the product conversion cycle
- Sustain brand equity and grow sales due to out-of-stock reduction
(1)GMROI = Gross Margin Return on Investment = is an inventory profitability evaluation ratio that analyzes a firm’s ability to turn inventory into cash above the cost of the inventory (GMROI = Gross profit / Average inventory cost)
How does it work?
Our projects typically progress through the following phases in an effort to deliver a balance of specificity and speed.
Across this journey, we combine robust technical expertise, real-life experience, and an understanding of people and culture to tailor the best solution for our clients.
We appreciate that technologies and analysis alone don’t deliver transformation, they require people to bring to life. That’s why you can rely on us to go deep into the technical side, setting the inventory policies, processes, KPI’s and routines that orchestrate the flow of goods; whilst at the same time, ensuring sound change management to ensure we have the buy-in and collaboration of all the areas involved in the backbone of the operations.
One of the largest grocery chains in Brazil, with over 50,000 SKUs and 300+ stores had suffered from out-of-stock problems for nearly a decade. The company had been dealing with a stark contrast between either severe OOS inventory or excess inventory.
Through the completion of a comprehensive diagnosis of the causes of out-of-stock and overstock, it was clear the client required a complete turnaround of their Supply Chain, with a focus on inventory and breakdown for both FMCG and non-food goods.
With this in mind, we implemented a new organizational structure, a set of new inventory policies per channel (Direct store x Cross Docking and Stock), and re-designed supply routines/processes. With a strong focus on change management, we ensured the new methodology was tested in some pilot categories for 4 months, allowing for time to embed the new ways of working and to address any unforeseen problems.
We also introduced a new vendor relationship reward program that fostered better relationships between this retailer and industry suppliers, which today is highly known and recognized in the Brazilian market.
The work resulted in a -70% out-of-stock rate reduction, achieving the lowest historical rate ever, and reducing inventory levels at the same time (-5%), resulting in a significant increase in margin, and ultimately delivering the company’s annual target results.
Our client, a regional chain of specialty stores, was going through a phase of strong expansion. They were undergoing a restructuring of their commercial strategy, however, the supply chain area proved to be a bottleneck for growth, with high rates of out-of-stock causing loss of sales and a drop in the perception of quality by customers.
We assessed the company’s supply operations and its connection with the commercial area, mapping responsibilities, processes, policies, management, and systems. From the diagnosis, it was clear the necessity to segregate the different supply chains they had and tailor a solution for each one of them. Another need was to prioritize efforts based on a segmentation of the portfolio. Here, we detailed the Top 2000 SKU’s that represented most of the sales and most of the brand positioning and determined the actions required to guarantee their supply.
As a result, we designed new inventory police and governance routine for the entire portfolio of ‘regular’ items. A joint implementation with the Supply and Commercial area coordinated by a strong PMO and change management support team resulted in a strong delivery in just 4 months.
The project delivered a 21 p.p reduction in an out-of-stock index. Furthermore, through a quality hand-over to the client’s team through training sessions and improvement roadmap, we ensured ongoing good results post project closure.
Our client, a leading sports good retailer, needed to drastically reduce inventory levels in its footwear category, without jeopardizing sales. Their goal was to become a market leader in footwear in terms of inventory management with a world-class ‘days in hand’ figure.
We designed and subsequently implemented a new Inventory Management model which combined two important integrated aspects. (i) An assortment model with unique tools to allow the best choices combining different criteria (brand strategy, consumer point of view, competence, store clusters) and (ii) a replenishment model, ensuring a complete connection between business decisions and the supply chain.
Implementing this model together with the client team led to an impressive inventory level reduction of 30+ days – reaching a world-class standard in the days in hand and at the same time leading to an increase in sales.
OUR INDUSTRY EXPERIENCE
We’ve had the pleasure of working alongside dozens of retailers across different segments and geographies. This has allowed us to understand and appreciate the challenges that occur in pharmaceuticals versus luxury goods for example and cater for the particularities that are present. Retail segments that we’ve served include: