Missing Links in Retail Out-of-Stock Report

Missing Links in Retail Out-of-Stock

Game-changing technologies are helping retailers both manage and reimagine the entire value chain. These technologies—and robust technical expertise—are critical components of solving what remains one of the industry’s oldest and most costly challenges: out-of-stock retail inventory. However, based on live 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 Missing Links

For those seeking to reduce and/or control high out-of-stock levels, this report details Integration’s four-part approach to bridging the gap between technical solutions and human capital to achieve lasting, transformative results. Our four-part approach covers what we call the “missing links”—practical, tangible actions that connect people to processes and enable C-level retail executives and senior leadership.

The Missing Links
The Replenishment Segmentation Matrix

The Replenishment Segmentation Matrix

Over many years of working alongside our clients and understanding the nuances of OOS inventory, we have developed the following Replenishment Segmentation Matrix. The matrix leverages two powerful criteria of inventory replenishment— Assortment Turnover and Supply & Demand Stability— to segment retail categories into four quadrants. As you read the criteria descriptions below, think about where your categories fit within the matrix or if they touch all quadrants.

The Vicious Cycle

This section includes examples of how siloes between departments can cause out-of-stock scenarios to quickly escalate and spin out of control (what we call the “vicious cycle”), and why positioning out-of-stock alongside the more common KPIs of revenue, margin and inventory works well for many retailers.

The Vicious Cycle

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The Replenishment Segmentation Matrix uses the determinants of inventory turnover (Assortment Turnover and Supply & Demand Stability), to divide retail categories into four quadrants.
Add up to six categories to get information where they stand.

Bet & React

  • Characterized by higher assortment turnover and lower stability.
  • Product categories are trending and/or limited in supply (Christmas décor, Easter eggs) and can be leveraged for short-term promotions.
  • Products in this category are driven by consumer desire and imply a greater degree of “art” for the retailer in selecting products to actively “bet” on selling and/or merchandising at the highest margin. If the items don’t sell, they will have to be marked down or managed in other ways (“reactively”) that minimize impact to the company’s profits.
Negotiate Wisely

Negotiate Wisely

  • Starts like Bet & React in terms of how Merchandising must “bet” on certain products. However, products may become more or less automatic (Maintain Discipline) in replenishment over time, depending on consumer response. For example, a new TV model that is initially a bet may become an expected product offering.
  • Key to watch over margins and inventory carefully, as consumer demand and supply may vary in reliability.
  • Vendor relationships are critical, which should include negotiating wisely on just-in-time purchases, trade terms and price breaks, e.g. if a vendor wants to push a new-generation electronic that you don’t have room for, they may accept existing stock back at cost.

Forecast Together

  • Based on projected consumer demands, “Forecast Together” comes with the benefit of relative reliability. For example, seasonal grocery items such as matzo balls at Passover or chocolate on Valentine’s Day will sell; however, the life cycle is short and fluctuations in pricing are constant.
  • Replenishment forecast must be well-planned, leveraging historical data to draw a baseline. In cases of less forecast certainty, responsive actions such as inventory buffers can be positioned strategically close to consumer demand. Some retailers do this through their DCs, if the footprint enables low lead times, or by renting storage and/or rearranging backrooms during seasonal peaks.

Maintain Discipline

  • This group likely includes many items with a long life cycle, e.g. low Assortment Turnover, but it’s composed of necessity goods that consumers will always buy, placing it on the higher end of Supply & Demand Stability.
  • There is less “betting” in this segment—forecasting can be done using historical demand data to project future demand.
  • Represents the brands your store carries that are likely fixed, with several in each category type. Vendor supplies should likewise be consistent.
  • Because demand is continuous, the replenishment DNA is straightforward and requires maintaining discipline to ensure that goods flow through the value chain as planned.

Bet & React

  • Characterized by higher assortment turnover and lower stability.
  • Product categories are trending and/or limited in supply (Christmas décor, Easter eggs) and can be leveraged for short-term promotions.
  • Products in this category are driven by consumer desire and imply a greater degree of “art” for the retailer in selecting products to actively “bet” on selling and/or merchandising at the highest margin. If the items don’t sell, they will have to be marked down or managed in other ways (“reactively”) that minimize impact to the company’s profits.

Negotiate Wisely

  • Starts like Bet & React in terms of how Merchandising must “bet” on certain products. However, products may become more or less automatic (Maintain Discipline) in replenishment over time, depending on consumer response. For example, a new TV model that is initially a bet may become an expected product offering.
  • Key to watch over margins and inventory carefully, as consumer demand and supply may vary in reliability.
  • Vendor relationships are critical, which should include negotiating wisely on just-in-time purchases, trade terms and price breaks, e.g. if a vendor wants to push a new-generation electronic that you don’t have room for, they may accept existing stock back at cost.

Forecast Together

  • Based on projected consumer demands, “Forecast Together” comes with the benefit of relative reliability. For example, seasonal grocery items such as matzo balls at Passover or chocolate on Valentine’s Day will sell; however, the life cycle is short and fluctuations in pricing are constant.
  • Replenishment forecast must be well-planned, leveraging historical data to draw a baseline. In cases of less forecast certainty, responsive actions such as inventory buffers can be positioned strategically close to consumer demand. Some retailers do this through their DCs, if the footprint enables low lead times, or by renting storage and/or rearranging backrooms during seasonal peaks.

Maintain Discipline

  • This group likely includes many items with a long life cycle, e.g. low Assortment Turnover, but it’s composed of necessity goods that consumers will always buy, placing it on the higher end of Supply & Demand Stability.
  • There is less “betting” in this segment—forecasting can be done using historical demand data to project future demand.
  • Represents the brands your store carries that are likely fixed, with several in each category type. Vendor supplies should likewise be consistent.
  • Because demand is continuous, the replenishment DNA is straightforward and requires maintaining discipline to ensure that goods flow through the value chain as planned.

Bet & React

  • Characterized by higher assortment turnover and lower stability.
  • Product categories are trending and/or limited in supply (Christmas décor, Easter eggs) and can be leveraged for short-term promotions.
  • Products in this category are driven by consumer desire and imply a greater degree of “art” for the retailer in selecting products to actively “bet” on selling and/or merchandising at the highest margin. If the items don’t sell, they will have to be marked down or managed in other ways (“reactively”) that minimize impact to the company’s profits.

Negotiate Wisely

  • Starts like Bet & React in terms of how Merchandising must “bet” on certain products. However, products may become more or less automatic (Maintain Discipline) in replenishment over time, depending on consumer response. For example, a new TV model that is initially a bet may become an expected product offering.
  • Key to watch over margins and inventory carefully, as consumer demand and supply may vary in reliability.
  • Vendor relationships are critical, which should include negotiating wisely on just-in-time purchases, trade terms and price breaks, e.g. if a vendor wants to push a new-generation electronic that you don’t have room for, they may accept existing stock back at cost.

Forecast Together

  • Based on projected consumer demands, “Forecast Together” comes with the benefit of relative reliability. For example, seasonal grocery items such as matzo balls at Passover or chocolate on Valentine’s Day will sell; however, the life cycle is short and fluctuations in pricing are constant.
  • Replenishment forecast must be well-planned, leveraging historical data to draw a baseline. In cases of less forecast certainty, responsive actions such as inventory buffers can be positioned strategically close to consumer demand. Some retailers do this through their DCs, if the footprint enables low lead times, or by renting storage and/or rearranging backrooms during seasonal peaks.

Maintain Discipline

  • This group likely includes many items with a long life cycle, e.g. low Assortment Turnover, but it’s composed of necessity goods that consumers will always buy, placing it on the higher end of Supply & Demand Stability.
  • There is less “betting” in this segment—forecasting can be done using historical demand data to project future demand.
  • Represents the brands your store carries that are likely fixed, with several in each category type. Vendor supplies should likewise be consistent.
  • Because demand is continuous, the replenishment DNA is straightforward and requires maintaining discipline to ensure that goods flow through the value chain as planned.

Bet & React

  • Characterized by higher assortment turnover and lower stability.
  • Product categories are trending and/or limited in supply (Christmas décor, Easter eggs) and can be leveraged for short-term promotions.
  • Products in this category are driven by consumer desire and imply a greater degree of “art” for the retailer in selecting products to actively “bet” on selling and/or merchandising at the highest margin. If the items don’t sell, they will have to be marked down or managed in other ways (“reactively”) that minimize impact to the company’s profits.

Negotiate Wisely

  • Starts like Bet & React in terms of how Merchandising must “bet” on certain products. However, products may become more or less automatic (Maintain Discipline) in replenishment over time, depending on consumer response. For example, a new TV model that is initially a bet may become an expected product offering.
  • Key to watch over margins and inventory carefully, as consumer demand and supply may vary in reliability.
  • Vendor relationships are critical, which should include negotiating wisely on just-in-time purchases, trade terms and price breaks, e.g. if a vendor wants to push a new-generation electronic that you don’t have room for, they may accept existing stock back at cost.

Forecast Together

  • Based on projected consumer demands, “Forecast Together” comes with the benefit of relative reliability. For example, seasonal grocery items such as matzo balls at Passover or chocolate on Valentine’s Day will sell; however, the life cycle is short and fluctuations in pricing are constant.
  • Replenishment forecast must be well-planned, leveraging historical data to draw a baseline. In cases of less forecast certainty, responsive actions such as inventory buffers can be positioned strategically close to consumer demand. Some retailers do this through their DCs, if the footprint enables low lead times, or by renting storage and/or rearranging backrooms during seasonal peaks.

Maintain Discipline

  • This group likely includes many items with a long life cycle, e.g. low Assortment Turnover, but it’s composed of necessity goods that consumers will always buy, placing it on the higher end of Supply & Demand Stability.
  • There is less “betting” in this segment—forecasting can be done using historical demand data to project future demand.
  • Represents the brands your store carries that are likely fixed, with several in each category type. Vendor supplies should likewise be consistent.
  • Because demand is continuous, the replenishment DNA is straightforward and requires maintaining discipline to ensure that goods flow through the value chain as planned.

Bet & React

  • Characterized by higher assortment turnover and lower stability.
  • Product categories are trending and/or limited in supply (Christmas décor, Easter eggs) and can be leveraged for short-term promotions.
  • Products in this category are driven by consumer desire and imply a greater degree of “art” for the retailer in selecting products to actively “bet” on selling and/or merchandising at the highest margin. If the items don’t sell, they will have to be marked down or managed in other ways (“reactively”) that minimize impact to the company’s profits.

Negotiate Wisely

  • Starts like Bet & React in terms of how Merchandising must “bet” on certain products. However, products may become more or less automatic (Maintain Discipline) in replenishment over time, depending on consumer response. For example, a new TV model that is initially a bet may become an expected product offering.
  • Key to watch over margins and inventory carefully, as consumer demand and supply may vary in reliability.
  • Vendor relationships are critical, which should include negotiating wisely on just-in-time purchases, trade terms and price breaks, e.g. if a vendor wants to push a new-generation electronic that you don’t have room for, they may accept existing stock back at cost.

Forecast Together

  • Based on projected consumer demands, “Forecast Together” comes with the benefit of relative reliability. For example, seasonal grocery items such as matzo balls at Passover or chocolate on Valentine’s Day will sell; however, the life cycle is short and fluctuations in pricing are constant.
  • Replenishment forecast must be well-planned, leveraging historical data to draw a baseline. In cases of less forecast certainty, responsive actions such as inventory buffers can be positioned strategically close to consumer demand. Some retailers do this through their DCs, if the footprint enables low lead times, or by renting storage and/or rearranging backrooms during seasonal peaks.

Maintain Discipline

  • This group likely includes many items with a long life cycle, e.g. low Assortment Turnover, but it’s composed of necessity goods that consumers will always buy, placing it on the higher end of Supply & Demand Stability.
  • There is less “betting” in this segment—forecasting can be done using historical demand data to project future demand.
  • Represents the brands your store carries that are likely fixed, with several in each category type. Vendor supplies should likewise be consistent.
  • Because demand is continuous, the replenishment DNA is straightforward and requires maintaining discipline to ensure that goods flow through the value chain as planned.

Bet & React

  • Characterized by higher assortment turnover and lower stability.
  • Product categories are trending and/or limited in supply (Christmas décor, Easter eggs) and can be leveraged for short-term promotions.
  • Products in this category are driven by consumer desire and imply a greater degree of “art” for the retailer in selecting products to actively “bet” on selling and/or merchandising at the highest margin. If the items don’t sell, they will have to be marked down or managed in other ways (“reactively”) that minimize impact to the company’s profits.

Negotiate Wisely

  • Starts like Bet & React in terms of how Merchandising must “bet” on certain products. However, products may become more or less automatic (Maintain Discipline) in replenishment over time, depending on consumer response. For example, a new TV model that is initially a bet may become an expected product offering.
  • Key to watch over margins and inventory carefully, as consumer demand and supply may vary in reliability.
  • Vendor relationships are critical, which should include negotiating wisely on just-in-time purchases, trade terms and price breaks, e.g. if a vendor wants to push a new-generation electronic that you don’t have room for, they may accept existing stock back at cost.

Forecast Together

  • Based on projected consumer demands, “Forecast Together” comes with the benefit of relative reliability. For example, seasonal grocery items such as matzo balls at Passover or chocolate on Valentine’s Day will sell; however, the life cycle is short and fluctuations in pricing are constant.
  • Replenishment forecast must be well-planned, leveraging historical data to draw a baseline. In cases of less forecast certainty, responsive actions such as inventory buffers can be positioned strategically close to consumer demand. Some retailers do this through their DCs, if the footprint enables low lead times, or by renting storage and/or rearranging backrooms during seasonal peaks.

Maintain Discipline

  • This group likely includes many items with a long life cycle, e.g. low Assortment Turnover, but it’s composed of necessity goods that consumers will always buy, placing it on the higher end of Supply & Demand Stability.
  • There is less “betting” in this segment—forecasting can be done using historical demand data to project future demand.
  • Represents the brands your store carries that are likely fixed, with several in each category type. Vendor supplies should likewise be consistent.
  • Because demand is continuous, the replenishment DNA is straightforward and requires maintaining discipline to ensure that goods flow through the value chain as planned.
Test Matrix (this website requires Chrome, Edge or Firefox navigators)

Categories

E.g: apparel, Eletro/Home Appliances, Perishables, Grocery, etc.

Average Life Cycle

Average life cycle of products in this category: input in months <3, 3, 6, 9, 12 and >12 months.

SKU Relevance

How relevant is the SKU / store sales record for to forecasting: 1 poorly adherent (e.g. clothing, ...); 5 very adherent (continuous use drugs).

Industry Influence

How much the industry directly influences the order: 1 - order is heavily influenced by the industry (e.g. butcher shop, televisions, ...); 5 - order is basically replenishment of future sales (e.g.: washing powder).

Representativeness

Representativeness in the business (non-mandatory answer): the higher the answer, the higher the representativeness to your business