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Not only during peak season: Retailers lose billions with empty shelves

By : Susan Boyme

December 14, 2016 01:38 PM

Spoilage of perishable goods is the second largest loss category for food retailers, revealed a recent IHL Group survey. According to IHL, retailers globally lose $ 80 billion annually because they are not able to sell perishables before their expiration date. However, the report also shows that buying and stocking more conservatively is not the answer, as empty shelves account for 2 billion US-Dollars in missed sales every year.

 

One of the top challenges food retailers face when managing and ordering inventory is taking into account the different life cycle of all of the goods they carry. As when it comes to customer loyalty, retailers don’t always get a second chance.

 

Currently, most retailers use one of three options: the basic tools that come with their ERP solutions, an in-house developed ERP solution, or they manage inventory and ordering manually. Specialized software solutions for inventory management and demand-driven replenishment are superior alternatives because they not only focus on solving problems for a particular segment, but are designed to integrate with common ERP solutions and existing IT and POS infrastructures.

 

The following questions help to determine the right system:

 

  • How future-proof is the solution? 

Data is one of the most important assets in today’s highly digitized world. Therefore, a new system should use all available data for inventory management and replenishment and integrate with the existing infrastructure, but also offer a path for the integration of future technologies?

 

  • Is the system granular enough?

Shelf space is a limited and a valuable resource for retailers. So, forecasting algorithms need to reflect the different demand patterns for each individual product (SKU) accurately, for every location and every day.  Weekly forecasts are not good enough.

 

  • Can seasonal peaks and holidays be taken into account?

Specialized tools respond proactively to upcoming calendar events and holidays, and suggest orders and order quantities ahead of time to improve both sales and margins. They also look for anomalies and perform statistical smoothing so that one-time events don’t incorrectly impact calculations for future demand.

 

  • Is the entire lifecycle reflected?

Fresh produce and perishables sell best when customers can rely on them being fresh and a high quality. Retailers must be able to handle the nuances of perishable inventory management and balance the efficiency of large orders with the shelf life expectancy to avoid spoilage and throwaways, while preventing out-of-stocks. 

 

  • How much can be automated?

Moving to an automated ordering system takes workload off the managers’ shoulders as they only need to review the suggested orders and deal with exceptions flagged by the systems. As these systems ‘learn’ over time, the accuracy of forecasts and orders continue to improve and can alert associates of potential inventory problems before they happen.

 

Inventory is not just something retailers set up once and then it is set forever. The item data and the system need regular monitoring to ensure all is working properly. This includes training associates to track every item movement no matter if it is a sale, transfer or vendor return. While smaller retailers may find these changes overwhelming, they are critical to improving inventory, and yield huge benefits.

 

Why bother?

 

Currently, only few retailers globally actually capture the losses that empty shelves are causing. In our experience special software solutions improve the availability of products by 60% - 90% and at the same time reduce the perishable spoilage by up to 50% within the first year of use. This results in an average increase in sales of 2% while reducing their inventory capital costs by 10% - 15%. Given the high pressure on margins in the food trade, retailers are wasting enormous potential.

Susan Boyme

General Manager of NCR's Retail Industry Solutions Group

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Susan has over 15 years of experience in retail technology, and is currently focused on merchandising and supply chain solutions. Her area of focus includes mapping emerging business and IT trends to NCR’s technology portfolio, providing guidance to product management, sales and professional services.