What's the biggest supply chain issue for CPG/Retail?

This morning I picked up a post for this blog from Visicom.  In summary
"We asked dozens of retail store managers this week: what’s the biggest issue you are having with product delivery by vendors? Know what they said? The biggest problem for most retailers is out of stock products."
Despite the low, probably unrepresentative sample size (dozens?) I think there is a ring of truth to this, but, is product delivery the biggest supply chain issue for CPG/Retail?  Not even close.

Of course it's a problem if a vendor cannot deliver the goods, particularly if this is to support promotional activity.  A more flexible and responsive supply chain can reduce this problem and it's a worthy goal to improve that capability.

But, the biggest issue with the supply chain is still the replenishment of the shelf from inventory that the store already has.   The one moment of truth that matters is when a shopper is looking for a product: is it there on the shelf?  With store systems typically reporting that they have sufficient inventory to support sales ~99% of the time, why do one-off reports repeatedly show that on-shelf presence is closer to 90% ?

Part of the problem is that measuring on-shelf presence is relatively difficult and expensive because you can't rely on the stores systems to tell you the answer:
A large part of the problem is to do with so called "phantom inventory".  Phantom inventory that appears to be at the store but in reality has been lost to theft, unrecorded damage, sales recorded as another product or perhaps it is literally "lost": it's in the store but if neither you nor the customer can find it, it's as good as useless. 
Whether or not product is on-shelf can also change (easily) within the day.  Measure it late at night after much re-stocking has been done and it may look a lot better than it does at 6:30 pm on a Friday night. 
Even if product is on a shelf, it may not be on the right one or it's effectively removed from sale by having other product placed in front of it, or being out of reach (like individual cans of cat-food at the back of a 4' deep "warehouse" shelf.)  
So, it's difficult to get good numbers of how bad the problem really is but ~90% on-shelf presence seems to be a reasonable estimate.   This ties with my own experience and is born out repeatedly in ad-hoc studies.

A number of companies (RSi, TR3, TrueDemand - now owned by Acosta) have built business on systems that monitor point of sale data and flag to the Retailer/CPG which products appear to be off-shelf at any point so they can rush someone in to fix the problem: find lost inventory, identify phantom inventory, replace lost shelf-tags or just re-organize the shelf so there is room to replenish a product where it is supposed to be on the planogram.   This too is a good idea, but it will never pick up all off-shelf  issues: they require at least multiple days of zero-sales if not weeks to be effectively picked up.

A CPG may feel that this issue is entirely within the store's control but I'm not so sure.   It seem to me that there are any number of things that a CPG could do to make it easier for a retailer to stock shelves effectively.  Here are some hypotheses that I think would be worth testing::

  • It's  easier to stock products that fit easily on the shelf: pack-size v.s shelf-space could play a big role.
  • 5lb cases get re-stocked more effectively than 45lb cases
  • products that are easy to identify in back-room storage are re-stocked more effectively
  • whole cases are re-stocked more effectively than cases that must be broken open.
  • some shelving fixtures see more off-shelf issues than others
  • some package-forms see more off-shelf issues
  • some departments routinely have more off-shelf
  • planograms are set based on "average" volume but off-shelf issues are driven by peaks in demand (see Do you need daily Point of Sale data?)
Is this the right list?  Probably not: it's certainly incomplete and we would probably find not all of these matter  much to the outcome, but, I do think it's the right approach.  With an appropriate sampling scheme to measure on-shelf presence and some predictive-analytics  we could find (and quantify) what really drives this problem then work to eradicate the root causes to get substantial improvements.

How does 2%-3% more revenue sound to you?  It may not seem like a lot but with typical logistics costs  representing 5%-10% of CPG sales a 3% increase in revenue may well be the biggest thing supply-chain can do to improve the bottom line.

What do you think drives or prevents excessive off-shelf issues?   Or do you think I'm missing the point and there is a bigger issue to be found?  Let me know in the comments section below.


  1. The use of barcode scanners has helped retailers maintain a more accurate inventory but it is still important to have designated employees to keep track of lost and damaged merchandise. A seamless system using technology and manpower is the best way to keep track of stock and maintain the right level of stock.

  2. That's a good point, I have to believe things are better than they were.

    For people coming to this from a warehousing background they may be surprised at the relatively low levels of inventory-accuracy a retail store can manage. Distribution-Centers and Warehouses typically operate above 99% accuracy when they compare a physical count to the system's record. Retail stores, I believe, struggle to hit 80% and may be much worse. Then again, warehouses don't let their "customers" into the building to pick product off the shelves :-)

    Inventory management systems that record every inventory movement and good process discipline from store associates improve matters but I still don't see this problem disappearing.


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