Retail inventory accuracy and on-shelf availability (OSA) are the focus here at Akuret. But why is inventory accuracy and OSA so important? Furthermore, what company processes impact inventory accuracy and OSA? Finally, how can a company gauge the quality of their processes related to the inventory accuracy and OSA?
We asked our Chief Science Officer and Co-founder, Dr. Daniel Steeneck, to share his thoughts on these topics.
Akuret: We spoke recently with our CEO, Dr. Fredrik Eng Larsson about the importance of inventory accuracy and on-shelf- availability (OSA), especially with respect to the emerging trend of ``click and collect`` or ``curbside pick-up``. Can you remind us why this is so important for retailers and elaborate a bit more why retailers have trouble with inventory accuracy and OSA?
Absolutely. As Fredrik discussed, inventory accuracy is very important for retailers to ensure proper OSA and keep track of stock-loss/product damage leading to expensive write-offs. With ``Click and Collect``, inventory accuracy becomes even more important as customers who place orders online expect their orders to be filled completely! If the availability information is not correct, it can lead to expensive substitutions and unhappy customers.
To understand how a retailer can reduce inventory accuracy and OSA issues, let’s look at the main reasons for this problem:
Unobserved loss from theft, shipping errors, damaged product and product deterioration,
Clerk error at cash register (e.g., customer purchases banana and strawberry yogurt, but clerk scans banana twice),
Product forgotten/lost in backroom or customer misplaces product in store, and
Product mis-labeled or placed in the wrong spot on the shelf.
While some of these problems arise from untrustworthy employees, inconsiderate customers, and careless deliveries, among others, many of these issues are simply process problems that retailers can address by understanding the processes of their stores well.
Akuret: How do retailers ensure inventory accuracy and high OSA?
The pillars of maintaining high inventory accuracy and OSA are: (1) excellence in stocking operations and (2) methodically performing high value inventory audits. These pillars are supported by
Setting a corporate policy for performing audits that balances the cost of auditing efforts with the benefits of improved inventory records,
Ensuring excellence of the store-level stocking processes and
Continuously measuring and reviewing OSA and inventory accuracy performance across all store-SKUs, not just for compliance purposes at the end-of-year.
Akuret: How do you recommend retailers think about the next steps to take to improve their inventory accuracy and OSA? Any strategy for ensuring inventory accuracy and high OSA should include the following three components:
Detection of stock issues through audits or data analytics,
Prevention of stocking issues through root-cause analysis and process excellence, and
Integration of stocking issues through advanced predictive and prescriptive analytics that automatically account for, and compensate for, inventory inaccuracy and OSA issues.
We see in each of these components an information aspect (e.g., analytics) and a process aspect (e.g., audit and root-causes). Both aspects are critical and must be addressed together. It follows that a good first step for retailers to take is to identify the numerous processes that support inventory accuracy and OSA. We can take inspiration from the words of the famous process engineer W. Edwards Demming - “If you can’t describe what you are doing as a process, you don’t know what you are doing.” It is very important that a retailer understand these processes and how they are related to achieving the goals of their store. After these processes are understood, the retailer can begin to make the most important processes more mature.
Akuret: What do you mean by making a process more mature? What I mean by mature is very specific and is defined by the Capability Maturity Model (CMM) used in software engineering (and now has spread to the analysis of processes, in general). The CMM posits that a process can be at various levels of maturity:
Initial - the process was performed, but there is no guarantee it can be performed again,
Repeatable - the process can be reliably repeated,
Defined - the process is written down and can be communicated to others,
Managed - the process has performance metrics that can be tracked, and
Optimized - the process can be redesigned to maximize its performance
Also, realize that as processes increase in maturity, the information requirement increases as well.
For example, the stock replenishment process from the backroom is critical in maintaining OSA. If each new employee that is hired must figure out for themselves how to best perform this process, the process is at an initial level of maturity when an employee starts and increases to repeatable with practice. As there is very high turnover in stocking jobs, effort should be made to make this process defined and thereby preventing future stocking issues related to low process maturity. Notice that this process required progressively more information to be captured as it matured from initial to defined.
Akuret: Okay, it makes sense to define key processes, but what would a managed or optimized process look like?
Great question! While it is very important for retailers to mature though each level, managed and optimized processes are the most exciting with the greatest opportunities to create value.
For example, consider an audit process at a retailer whose policy is to check each product in a store at least two times a year with a minimum time between audit for a given product. This process is at best defined, but it may not be well managed or optimized. The goals of an audit are two-fold: (1) detection of actual stock-levels and (2) prevention of stock-outs. A well-managed audit process might capture metrics such as audits-per-SKU, inventory record discrepancies, and stock-outs discovered per audit, among others. An optimized audit process would integrate predictive analytics to estimate product availability and prescriptive analytics to trigger a minimal amount audits at the optimal times, maximizing the value of every audit. Going even further, if the processes are understood well enough, it might be possible to skip an audit all together and simply take an action, such as automatically placing an order or adjusting an inventory record.
Akuret: Any final words?
I would just say that the retailers which will be most successful in maintaining high inventory accuracy will be those focused on the fundamentals of understanding their processes and knowing which ones to make more mature. However, for retailers to best understand their processes and their performance, they need to be supported by the best information possible to understand their stocking processes and take the most valuable actions. ■
Akuret Solutions provides cloud-based software that helps retailers and manufactures achieve and maintain accurate inventory data and high on-shelf availability.
Interested to learn more? Contact Jesper Stenmark at email@example.com.