One Supply Chain: Solving the Out-of-Stock Problem

There is perhaps no more vexing problem for retailers and consumer goods manufacturers than having their merchandise out-of-stock on store shelves when the consumer is ready to buy. Companies have spent millions of dollars and collaborated with trading partners in various forms for years to try to solve this problem and yet, on average, one out of every 12 items on a customer’s shopping list is not on the shelf when they look for it. The numbers are even worse for promoted items. Can this problem ever be solved?

The Food Marketing Institute (FMI) and the Grocery Manufacturers of America (GMA) joined forces through their Trading Partner Alliance to find better solutions for this decades-long problem. Two years ago they formed an On-Shelf Availability (OSA) committee comprised of leading retailers, manufacturers and service providers to collaboratively find ways to improve OSA across the industry. JDA Software has been privileged to be part of this committee.

There are two key tenets of the OSA committee’s work that are worth noting. First, they developed a Good—Better—Best framework for how companies at all stages of the OSA maturity curve could advance toward greater collaboration and OSA success. This is important because it recognizes that each company has its own journey, resources and practices to navigate its unique path to OSA maturity. Thus, a company at Good level is not going to get to Best overnight, but can make incremental progress. Conversely, companies already at Best level can still improve. It is a very realistic approach that has a much better chance of success than previous one-size-fits all collaboration attempts.

The second key tenet is that the only way the out-of-stock problem will ultimately be solved is through trading partners creating what the committee calls: One Supply Chain. While this may seem like nirvana to some, it really boils down to trading partners constantly sharing data in real time so they can all be working from a single set of numbers for demand planning, assortments and replenishment. The important difference here is that trading partners are sharing raw POS data, not forecasts that have to be reconciled and only accentuate forecast error up the supply chain—the bullwhip effect. With everyone calculating from the same set of data, that problem is eliminated.

To get broad industry confirmation of their work, the Alliance conducted a survey of grocers and manufacturers in late 2014. The results of the survey, which does confirm their work to date, are contained in a report the Alliance presented at their recent Supply Chain conference.

In this video, Danny Halim, VP Manufacturing Strategy at JDA and a major contributor to the committee and the report, explains why the Alliance has pursued OSA, and highlights the recommendations in the report.

You can access the full report here.

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