Shortages and long out-of-stocks: what to do when the supplier stops delivering?

An out-of-stock of a different nature

Most out-of-stocks are born in store and fixed in store: 72% according to Corsten and Gruen. A long out-of-stock comes from upstream: a poor harvest, a plant shut down, a raw material that cannot be found, blocked transport, a SKU discontinued by the supplier. In France, the ECR France / IRI barometer measured in the first quarter of 2022 the highest out-of-stock rate in five years, with 333 million euros of lost sales over the quarter, savoury grocery being the most degraded category.

In that case, counting, replenishing and correcting stock are useless. The store cannot bring the product back. It can decide how its shopper experiences the absence.

Knowing that the out-of-stock is long

First problem: the store often learns last. Three signals:

• the SKU is ordered and not delivered several times running: visible at the receiving check (receiving and checking by SKU);
• the brand’s rep or the warehouse announces unavailability (brand field reps’ reports);
• every store in the area is in the same position: a call to the neighbouring store is enough.

As soon as the out-of-stock is identified as long, it leaves the usual treatment and enters the five decisions below.

The store’s five decisions

1. Inform the shopper, on the shelf

A simple, honest shelf card where the product sits: the product is unavailable at the supplier, return date unknown or estimated. The shopper stops looking, does not suspect the store of negligence, and the team stops answering the same question ten times a day (what to tell a shopper in front of an empty shelf).

2. Keep or reallocate the space

A gap of four facings for six weeks degrades the whole aisle. If the return is near, keep the space with the shelf card. If it is distant or unknown, temporarily reallocate the space to the most requested neighbouring SKUs, keeping the absent product’s label so as not to lose the slot (facing and shelf capacity).

3. Offer a substitute

Show on the shelf card the closest product available. When 26% of shoppers switch brand in front of an out-of-stock, they may as well be steered to a product the store has in quantity.

4. Limit quantities on return

When the product returns after a shortage, the first shoppers take several months’ worth and the shelf empties in an hour. A limit per shopper, displayed and held at the till, extends availability for everyone and avoids an immediate second out-of-stock.

5. Prepare the return to normal

During the absence, the SKU’s sales are zero: automatic ordering and forecasts go out of tune. On return, the reorder point needs reviewing by hand, and book stock checking (automatic ordering and out-of-stocks).

What not to do

• Leaving a gap with no explanation for weeks: the shopper concludes the store is badly run.
• Leaving the label and price of a product absent for a month with no notice: it is a broken promise every day.
• Counting these out-of-stocks in the aisle rate without separating them: they hide the progress made on the out-of-stocks the store controls. A separate line in the dashboard is enough (out-of-stock dashboard).

A worked example (hypothetical)

Take a fictional supermarket where twelve savoury grocery SKUs are unavailable at suppliers for six weeks. Untreated, the aisle shows twelve gaps and the counted out-of-stock rate goes from 6% to 9%, which discourages the team. The store puts up shelf cards with a substitute, reallocates the space of eight SKUs, and tracks those twelve SKUs on a separate line: the rate excluding shortages stays at 6%, and questions in the aisle fall. When the products return, a limit of two units per shopper is displayed for two weeks. The figures are illustrative.

What shopper reporting changes

During a shortage, shopper reports with ShelfAlert show which absent products are really being looked for, and which nobody misses: that is the information that guides the choice of substitutes and the reallocation of space. And the shopper who reports gets an honest answer rather than an empty shelf. 14-day trial, no payment card: see the plan for store managers.

Sources

• ECR France / IRI out-of-stock barometer, first quarter 2022: LSA, out-of-stock rate.
• Corsten, Gruen, “On Shelf Availability”, 2004: summary.
• Gruen, Corsten, Bharadwaj, “Retail Out-of-Stocks: A Worldwide Examination”, GMA, 2002: full study (PDF).