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Autonomous growth by out of stock reduction

In the trade press, we frequently read about the challenges provided by out-of-stock. And justifiably so. High out of stocks, usually trivialized by retailers, cause manufacturers to lose substantial turnover and to experience insufficient growth. And there's something manufacturers and retailers are not aware of: 'out of stock' is one of the major causes of failure of new product introductions.
Today's publications don't deviate from those of 5 to 10 years ago. But the issue gets more critical now, as a consequence of the absence of sufficient market growth. Retailers regard the out of stock phenonemon as a multiheaded monster; as a versatile problem. Despite improved logistics, ECR, EDI and category management, retailers are only fractionally capable to tackle the challenge. And no one is confident about upcoming developments.
Paradoxically enough, it's generally expected that 'out of stock' will actually increase. Regardless of shorter lead times and improved ECR.

Weekend out of stocks: 20-25%
The issue gives rise to much discussion in the chain. In their communications with retailers, manufacturers and account managers unceasingly stress the high irritation factor of customers who are loyal to a brand, as a result of sky rocketing out of stock situations. Apparently it's not unusual for A-brands tot have an out of stock rate going up to 25% and beyond.
In any case, nothing bugs a retailer more than the recurrent message that his logistics are not functioning properly, especially if the manufacturer doesn't simultaneously offer practically applicable and affordable solutions.
And the retailer isn't really waiting for the advice to 'get an extra shipping on Friday and Saturday'.
Does the trade acknowledge the size and impact of the out of stock challenge as much as the industry does? Fact is that retailers have their very own view on the indispensability of brands and products in their assortment.

Depth
In search of possible solutions in Food, branch organizations SMA and CBL are setting up workgroups in Food, but even they are in danger of getting bogged down in the problems. And what are the causes?
Branch authorities/workgroups are looking at the challenge with collective eyes. And so they should, because in the branch they represent the collective. But the consequence of this collectivity would be consensus-type solutions to problems demanding an individual approach.
But manufacturers don't plan to share all logistic knowledge and solutions with the opponent.
And another consequence of collective workgroups is insufficient depth. Out of stock is the core of a qualitative issue which many in the industry and in the trade think they can solve with a numerical approach.

    Numbers have a semblance of depth, but do they also offer solutions? Numbers map something and they are indispensable. But numbers are often contradictory and they are not always interpreted correctly, usually because the proper qualitative groundwork is lacking.
    And if trade and industry finally want to go for a substantial out of stock reduction, after years of endless talking about the issue, the promotional logistics will also need to be subject of a study. And promotional logistics differ for every category, brand and manufacturer.
Initiative
The causes of out-of-stocks are mainly to be found with the retailer, and so are the solutions. The industry, who's held this opinion for years already, has been right about this all along. But if the retailer is unable to adequately tackle problems in his logistics, and improvement is not to be expected, then the retailer's problem becomes the manufacturer's problem. In that case it's sensible for the manufacturer to provide actual and practical solutions.
And the individual manufacturer who takes the initiative won't pay the heavy price which has been paid recently in joint ECR and category management projects with some savvy retailers.
What's more, if a manufacturer is able to demonstrate autonomous growth as a result of sensible logistic solutions, this same manufacturer holds a strong position in the yearly round of negotiations for sales conditions.
It's not so much reluctance that's keeping the retailer from fully mapping his own problems and translating the charts into practical solutions. He's thwarted by a basic unfamiliarity with his own organization and logistics!
This is a fascinating subject and we can easily fill an afternoon with real-life examples and comments.

Bierman's analysis of logistics issues
The logistics view of the manufacturer

Which components influence the scale of out-of-stock, how can we properly map the challenge with the solutions and how can we subsequently generate a structural and extensive reduction of out-of-stock?
And first and foremost: how does the manufacturer gets a grip on the assortment and on the facings in channels that allow quite some slack in shop floor discipline?
Bierman has the technique and also the trust of (major) retailers to be able to do research in their logistic organization.

The essential difference between ECR-studies and Bierman's logistics studies
ECR focuses on costs and cost reduction in the logistic track of retailer and manufacturer.
But then errors in the logistic track of the retailers are incorporated!
Bierman scans for errors in the logistic track of the retailer and then focuses on workable solutions and on the costs of these. This yields much more for both producer and retailer.

The manufacturer's logistics are a result of the retailer's logistics.
So any logistics errors not eliminated by the retailer subsequently turn up in the manufacturer's own logistics.
Besides, manufacturer and retailer can't discuss ECR forever. Because you can only cut specific costs once in the organization. Whereas with Bierman's analysis, discussions about solutions and improvements in logistics can develop continuously. Because one can always do better!
Also, retailers in ECR-projects are not interested in cost reduction as far as 3 decimal figures. Logistic solutions that cut the weekend out of stocks in half are much more interesting.

Bierman does research on all links in the chain of the retail organization. Besides logistics and category management, Bierman also focuses on that smart shelf space clerk on the shop floor and on that creatieve order picker in the DC who have done some thinking about their work.

Promotion management in FMCG in 2014.

The advice. The implementation
Bierman's consultancy doesn't stop at providing advice. Translating the findings into practice and supporting Sales and Marketing is one of our core activities. We frequently participate in sessions on head office level. Or as "front man" in sales talks on the shop floor.
E-mail or call us for an introductory assessment or for a tailor made ping pong session.

FMCG-news "on line"
"Trends in Distribution and Food Marketing" is a publication of Bierman distributed free of charge via e-mail.
The newsletter is exclusively distributed to manufacturers in FMCG and it comes out infrequently: only when there's something to report.
Subscription is possible through an e-mail to josbierman@fmcg.nl with the text "free subscription" in the message header or message body.


If all goes well
You can still perform better

P.J. Bierman
telefoon: 0315-243494
Email: (<josbierman@fmcg.nl>)
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