Fixing on shelf availability collaboratively

Punishing retail suppliers for poor service levels is lazy. We need a new focus on fixing on shelf availability. I was a Tesco buyer. I used to bollock suppliers for short deliveries. It didn’t achieve a lot. Buyers see reports showing that a supplier has missed a delivery, and the reaction is to pick up the phone, and even threaten them with fines. It’s lazy, and it misses the point. Don’t forget that suppliers want to sell stuff too.

The objective of both the supplier and the retailer is to maximise product availability i.e ensuring the product is on the shelf when a customer wants to buy it. Effective management of your ‘flow-of-goods’ from production line to consumer is much more nuanced than “did a supplier deliver what I ordered last month?”.

That said, most suppliers still focus on supplier-to-retailer service level - ie did I deliver exactly what the retailer ordered? It makes for a nice KPI report, or at worst a ‘name and shame’ of worst offenders.

So why is that so bad?

• It’s not always the biggest factor for influencing on-shelf availability
• It assumes that the retailers are getting the orders right: the correct quantity into each depot, on the right day (guess what - sometimes they don’t)
• It’s not accurate. It can easily be manipulated to look better than it is (if you don’t have stock, you can ask the retailer not to order it - masking the real issues)
• It doesn’t always impact the customer - surely the most important measure

The alternative?

Q: Why is ‘depot to store’ service level a more relevant measure?
A: Simply put - it affects shelf availability more directly, and hence lost-sales (of your products).

Yet many suppliers don’t look at it, or think that they can influence it. I have heard suppliers say “Depot stock service level is the retailer’s responsibility” (seriously?). They often assume that the retailers have fantastic, all-knowing systems that produce perfect forecasts (They don’t).

A supplier’s job does not end at the point they drop their stock off at depot. It is a mistake to assume that the retailers are going to get it right, and be looking at your products on a daily basis. The reality is that many supply-chain managers in retail have several thousand products to look after (across multiple depots). That’s tens of thousands of things to check each day.

Retailers will inevitably focus on the key volume lines, products on promotion, or fire-fight the ones that have already gone out of stock (backwards looking).

Worse still, many suppliers look at aggregated (eg weekly or monthly) reports, or averages across many products - “my depot to store service level was 98% last month”. Great. So what?

The reality is more complex – you need to be managing demand at a SKU / depot level, daily, with good quality forecasts of what ‘should’ be there - this will inform action and drive improvement.

Why focus demand at SKU/depot level?

• It is the last leg to store availability
• You can influence it (more than most suppliers think), and most suppliers understand their products much better than the retailers do
• It will help you to prioritise your deliveries more effectively (especially when allocating limited stock)

How?

• Link sales data to stock data - sales is a great lead-indicator of likely demand from depot!
• Daily monitoring, not weekly (stock cannot be measured by averages)*
• Do it across all major clients
• Improve forecasts through better analysis
• Provide helpful insights to your retail supply-chain manager in a way that they can quickly understand, and take action (“we need to order more of this product into that depot, and here’s why”)

*If you think stock levels can be measured by weekly reports or averages, think about the statistician that drowned crossing a river... “It was 3 feet deep on average”

Collaboration required

Focusing on depot-to-store service levels fosters genuine collaboration, it helps: 

• Suppliers to focus on allocating limited resources effectively
• Retailers to be proactive in managing orders (not just reacting to out of stocks)
• Both parties to sell more, by optimising availability