Supply Chain in Crisis: How to Combat Issues in On-Shelf Availability
Out of stocks (OOS) and phantom inventory (PI). Two terms that strike fear with any brand—regardless of size or influence.
I grappled with both for 16 years while working for Supply Chain at Procter & Gamble, and now for another two decades-plus as a co-founder and CEO serving the CPG industry through Plum and other retail-facing ventures.
OOSs and PI, you'd agree, are especially top-of-mind today, amid a multi-faceted supply chain crisis precipitated by Covid, labor shortages, inflation, and geopolitical instability.
When we think about the two-headed monster of lost retail sales (OOS and PI)…
- Shoppers can’t buy what isn’t available, whether in-store or online (out of stocks)
- Retailers won’t reorder what the “system is saying” is supposed to be on-shelf or on-hand, even if it actually isn’t (phantom inventory)
We have intuitively known for years that OOSs and PI are prominent issues within the larger arena of on-shelf availability (OSA). An arena of critical importance to brands, especially as supply chain issues continue to be a problem at retail.
- But just how pressing are the problems of out of stocks and phantom inventory?
- And what can brands do to combat this two-headed monster?
We teamed up with our good friends at SupplyPike, an innovative company offering cloud-based tools to help CPGs manage and monitor their relationships with retailers, to take a deep dive into this pressing topic.
We even conducted an audit of three stock-keeping-units (SKUs) across 85 Walmart Supercenters. It's about to get wild.
Our results are in, so let’s get right down to it. First, though, a brief video where I share a few observations about OSA, OOSs, and PI from my career in CPG retail...
Auditing On-Shelf Availability: 3 SKUs, 85 Stores
SupplyPike brought the analytics.
One of our providers, Field Agent, brought the OSA-auditing capabilities.
First, using its retail intelligence system, SupplyPike identified three SKUs across 85 Walmart Supercenters and, for each SKU-store combo, approximated an “in-stock probability” based on Retail Link data.
We cannot offer precise identifying-information about the three SKUs analyzed by SupplyPike, but, generally, they might be described as:
- A “checkout” station item - durable, approximately $10
- A “sporting goods” item - durable, approximately $20
- A “baby toy” item - durable, approximately $12
Second, through the Field Agent Marketplace, we launched an OSA audit of all 255 SKU-store combinations—taking photos of stock levels and counting the actual number of SKUs available on-shelf. The audit was completed March 19-27, 2022.
Finally, we determined the presence of OOSs and, working with SupplyPike, confirmed whether phantom inventory existed.
What did we find?
Here are the results, followed by some practical observations and advice from my years of observing and managing OSA.
Results: Out of Stocks
In Field Agent's OSA audit of three SKUs, including a “checkout” item, a sporting goods item, and a baby toy item, we asked our auditors, or “agents,” to first locate the product in a specific section of their assigned Walmart Supercenter.
After locating the item (or finding where the item was supposed to be), agents used the Field Agent app to take a picture of the SKU and enter the number of units available on-shelf.
So, of the three SKUs, how many Supercenters were out of stock? We found…
- “Checkout” item - 3 OOSs
- Sporting goods item - 6 OOSs
- Baby toy item - 5 OOSs
Yet that’s hardly the full story, because some of these items were missing from store shelves entirely. Aka, our agents couldn’t even find the shelf tag where they were supposed to be, as follows:
- “Checkout” item - 6 unique shelves with no tags
- Sporting goods item - 6 no-tags
- Baby toy item - 26 no-tags
Altogether, between OOSs and no-tags, about 20% of 255 total SKU-store combinations were unavailable for purchase. Put simply, in 1-of-5 audited stores, a shopper wouldn't have been able to purchase the specified SKU - even if they wanted to.
Additionally, another 17% were critically low on inventory (i.e., only 1-2 units available), as follows:
- “Checkout” item - 5 critically low
- Sporting goods item - 15 critically low
- Baby toy item - 23 critically low
But, a question remains: Were these OOSs and/or low-inventory levels expected? In other words, were units (or more units) expected to be on-shelf—but the in-store reality was different?
For that, let’s take a peek at phantom inventory and SupplyPike’s analysis of the audit data.
Major Results: Phantom Inventory
Phantom inventory (spooky in more ways than one) is an all-too-common situation where a retailer’s inventory system reports units on-shelf or on-hand, but the actual number on-shelf/on-hand is actually smaller.
And there are a few common causes of phantom inventory: replenishment mistakes, shrink, scanning errors, improper handling of merchandise, etc.
Whatever the cause, however, the effect is lost sales, in a few ways:
- Brands and retailers fail to realize when out of stocks exist on-shelf
- Retailers aren’t triggered to reorder
- Fewer sales suppress sales forecasts
So, did we bump into any phantom inventory in this OSA audit of three SKUs?
Short answer, yes. Plenty.
- For the "checkout" item: Retail Link reported 3,417 units on-hand, while Field Agent's auditors found 1,522 units actually on-shelf. That's a difference of 1,895 units, or 55% of what Retail Link suggested would be available
- For the sporting goods item: Retail Link reported 576 units on-hand; auditors counted 440 units; difference of 136 units, or 24%
- For baby toy item: Retail Link reported 547 units on-hand; auditors counted 172 units; difference of 375 units, or 69%
Looking at the results, Stacy Tan, senior director of retail strategy at SupplyPike, referenced a quote made by John Furner, president and CEO of Walmart US, at the recent Walmart Supplier Growth Forum:
"We don’t have a problem with demand, we have a problem with supply," Furner said.
Something to which the results above clearly attest.
“We know Walmart is continuing to place additional focus on in-stocks and on-shelf availability," Tan said, "marking both as strategic keys to their growth in the upcoming year. It is imperative that suppliers keep their eye on the prize as well. Not only is it important to know and understand your pipeline, but to be proactive about addressing challenges with Walmart as well."
Be proactive. That's the critical point.
But let me break down our grudge-match with poor OSA even farther - and even offer some advice on what brands can do to overcome issues with OOSs, PI, and OSA,
3 Observations about On-Shelf Availability
For much of my career, I have been acutely aware of and concerned with on-shelf availability.
What have I learned in this time about managing OSA, OOSs, and PI?
Let’s boil it down to 3 things:
1. Slow-moving SKUs are especially vulnerable
Fast moving SKUs will take care of themselves over a short period of time, especially those that are replenished at the warehouse level.
However, slow-moving SKUs—those most often replenished via the assembly process (like those audited above, most likely)—face the most problems with on-shelf availability. Let's just say, they’re most vulnerable to out of stocks, phantom inventory, and other OSA issues.
Even with an excellent system (like Supply Pike) you will run the risk of being completely out of inventory by the time the system identifies an item has stopped selling. Then we all know what happens next: the tag is pulled and another facing is moved over to clean up the shelf.
So, as described in this primer on retail auditing, having eyes on the shelf at-retail is imperative to staying ahead of OOSs and PI issues with slow-moving items.
2. Don't let down your guard with low-performing stores and markets
History tends to repeat itself. If I have learned anything over the past years it is this: If a store/market has an issue this month…it will probably have an issue next month.
The same for the squared-away stores/markets, too. If OOSs are low and there is no predictor of PI, then, unless there is a major staffing change or shift in community patterns, that store will most likely continue to perform at a high-level going forward.
So focusing your resources and time on problem areas and stores is important, and software like Supply Pike will help you stay ahead of the game and monitor problem areas.
3. The grace period has ended for OOSs
Covid and supply chain issues have magnified the impact of OOSs and PI at-retail.
In the past, a supplier had time to resolve a problem at-shelf.
But, today, an empty slot on a shelf is the kiss of death; it's almost immediately replaced by another item just to make the shelf look inviting to shoppers.
Combining a software alert with an operational confirmation and fix is the new modus operandi for any supplier serious about eliminating OOS and PI.
And that's ultimately how brands combat OOSs, PI, and other issues with on-shelf availability...
Using the right tools to stay aware.
And retail intelligence systems and retail-auditing capabilities give you the awareness you need.
Take Stock of On-Shelf Availability. Anywhere. Anytime.
Whether you’re worried about out of stocks, phantom inventory, or another issue with on-shelf availability, we’ve developed an OSA audit that brands can buy and launch in just a few minutes.
We can have auditors in-store, often the very same day, checking OSA on your SKUs—so you can take quick action against conditions that rob your brand of sales.
Click below to launch an OSA Audit today.