The Inventory Battleground: Increasing Supply Chain Complexity
IHL’s latest report on the future of grocery shows some hard lessons learned from the 2020 disruptions, especially when it comes to inventory accuracy. Out-of-stocks (OOS) have always plagued the grocery industry, but the rise of digital shopping last year exposed some new causes for concern.
Last year, grocers and mass merchant retailers saw a $505 billion loss (up to 6% of store sales) due to OOS [i]. Approximately $75 billion of this loss was uncovered due to in-store fulfillment of online orders. How? Customers who encounter an OOS when they’re in the stores often grab alternative products without even thinking. Can’t find the Zesty Italian salad dressing? They just grab the Robust Italian salad dressing instead. The customer might be slightly disappointed, but the grocer might not notice there’s an item missing off the shelf. Online’s a completely different story. No Zesty Italian? No sale. As online shopping grew significantly, the age-old OOS problem was magnified.
The good news for 2020 was that total revenues were up by 9.4% versus 2019. Panic buying and the shift towards at-home cooking (among other influences) led to a record year for grocers. So, grocers essentially made up for their OOS problem by selling more of everything else. What if everything had been in-stock? Just think about how much revenue potential grocers missed last year.
But not every grocer suffered. Winners were able to meet the demand surge and realized a 7-18% increase in overall revenues (and up to 80% increase in online revenues) than their peers. The key to winning was the right technology with the insights to identify and react quickly to shifts in demand signals, led by a holistic view of inventory availability and advanced category management and merchandising systems. Let’s take a closer look at why these technologies matter.
Even with the drastic rise in digital ordering, the physical store is still involved with 92% of all sales. This means items on the shelf must meet the demand for both the walk-in shopper and the click-and-collect buyer. Demand forecasting must generate a combined view or grocers will be serving one type of customer at the expense of the other. And grocers really need to appeal to everyone — in-store sales make up the vast majority of profits and digital ordering is fast becoming a preferred shopping method.
It’s not enough to have accurate demand predictions. It matters what grocers can do with the information. Retail winners take intelligent demand forecasts and feed it into their category management systems to optimize store assortments and shelf placement. This helps ensure that available inventory is the right mix of high-demand items, without having too much stock. Advanced assortment planning solutions can create customer decision-mapping that identify what drives purchase decisions at each store location. Plus, integrated planogram generation means store-level compliance of merchandise plans and standardized layouts that help store associates pick online orders faster and with greater accuracy.
Beyond reacting to customer demand, the forecast is an integral component of intelligent lifecycle pricing with the goal of steering demand. Understanding not only how price sensitive customers can be at the local level, but also how price elasticity varies over time and geography is an important component in a connected retail model that unifies assortment, price and inventory.
Blue Yonder gives retailers end-to-end supply chain visibility for faster and more informed decision-making. Our solutions use artificial intelligence and machine learning to empower retailers to manage what they cannot see, helping to mitigate risks and stay ahead of potential disruptions. While no one expects future disruptions on the scale of what we experienced last year, something as common as a weather event or a new socially-influenced diet trend that leads to a demand surge can expose weaknesses in execution for grocers without the right systems. So far this year, we’ve seen supply chain disruptions due to a ship stuck in the Suez Canal, a global microchip shortage, a gas and chlorine shortage, ketchup and chicken wings shortage, and most recently personal hygiene products like makeup and teeth whitener. And we’re only halfway through the year!
As we move through 2021, it’s critical that grocers solve inventory problems for physical and digital spaces. The same IHL report estimated that only 30-40% of online shoppers would remain loyal post-pandemic because “the experience wasn’t great,” which was primarily attributed to out-of-stocks and inconvenient pickup processes. Customers won’t tolerate poor experiences now that things are getting back to normal. They will expect that what’s promised can ultimately be delivered, every day, with every order. They’ll want that Zesty Italian dressing.
Blue Yonder’s Luminate™ Commerce platform gives retailers the right tools and the right insights to fulfill their potential with a reduced cost to serve and optimized omni-channel execution.
Learn how Blue Yonder can help you here.
Download the IHL “Future of Grocery and CPG” report here.
[i] All figures in this blog are taken from IHL’s The Future of Grocery and CPG report