Shelf-Confidence: A Practical Guide to Reducing Out-Of-Stocks and Improving Product Availability in Retail

By Thomas W. Gruen and Daniel Corsten

Out-of-Stock and unavailable! In 2020, the perfect storm hit when the COVID-19 pandemic caused shoppers to buy food, toilet paper, and other items in a panic. The result was a large number of items were suddenly out of stock, leading to more buying and an outright crisis.

This book takes readers behind the scenes of consumer products retailing, uncovering and explaining the extent, the causes, and the shopper reactions to out-of-stock items. The authors draw on their decades of experience studying the availability of consumer goods to explore how to improve service levels, slash costs, boost efficiency, and enhance customer satisfaction.

Whether you’re a manufacturer, wholesaler, retailer, retailer consultant, researcher, member of the media, or a member of a trade association, you’ll discover useful insights in this well-researched book. Shoppers will also enjoy learning the behind-the-scenes details of how items get to the shelves, and how often they are out-of-stock! 

Here is what the consumer goods industry is saying about Shelf-Confidence:

“Shelf-Confidence will provide you with an invaluable collection of documented research, tested insights and actionable conclusions from twenty years of studying the out-of-stock issue.” 
Milan Turk, Jr., former Vice President, the Procter & Gamble Company

“This practical book provides industry benchmarks and best practices to improve availability online and offline.”
Olaf Koch, former CEO Metro Group, Partner at Zintinus.

“The thorough and practical research in this book will help retailers take waste out of the supply chain, improve omni-channel product availability, and change their game.”
Sir Terry Leahy, former CEO Tesco Stores

• Language: English
• Publisher: iUniverse
• Release date: Aug 22, 2022
• ISBN: 9781663238504

Thomas W. Gruen

The Team of Prof. Daniel Corsten and Prof. Thomas Gruen have been studying availability in consumer goods markets for more than 20 years, bringing a unique blend of operations and marketing to comprehensively address issues facing retailers and manufacturers. Beginning in 2000, and supported by multiple grants from Procter & Gamble, they have been continually addressing issues of out-of-stocks in consumer goods retail. As the retail world shifted towards e-commerce, Corsten and Gruen pioneered research focusing on “online availability” examining supplier, retailer, and online shoppers’ views of online availability in the consumer goods industry. They provide a global perspective, focusing on Europe, North America, and Asia. Daniel Corsten is Professor of Operations and Technology Management at IE University’s Business School in Madrid. He obtained his MSc from University of Cologne and his PhD from University of St Gallen. Thomas W. (Tom) Gruen is Professor of Marketing at The Paul College of Business and Economics at the University of New Hampshire. He holds Ph.D., MS, and MBA degrees in Marketing from Indiana University’s Kelly School of Business. Both are distinguished academics and retail industry experts, publishing numerous reports and articles including the Harvard Business Review. They are in high demand as speakers at consumer goods industry conferences. Co-founders of the AvailabilityLab, their work reaches a world-wide audience. 4.11.22 The Team of Prof. Daniel Corsten and Prof. Thomas Gruen have been studying availability in consumer goods markets for more than 20 years, bringing a unique blend of operations and marketing to comprehensively address issues facing retailers and manufacturers. Beginning in 2000, and supported by multiple grants from Procter & Gamble, they have been continually addressing issues of out-of-stocks in consumer goods retail. As the retail world shifted towards e-commerce, Corsten and Gruen pioneered research focusing on “online availability” examining supplier, retailer, and online shoppers’ views of online availability in the consumer goods industry. They provide a global perspective, focusing on Europe, North America, and Asia. Daniel Corsten is Professor of Operations and Technology Management at IE University’s Business School in Madrid. He obtained his MSc from University of Cologne and his PhD from University of St Gallen. Thomas W. (Tom) Gruen is Professor of Marketing at The Paul College of Business and Economics at the University of New Hampshire. He holds Ph.D., MS, and MBA degrees in Marketing from Indiana University’s Kelly School of Business. Both are distinguished academics and retail industry experts, publishing numerous reports and articles including the Harvard Business Review. They are in high demand as speakers at consumer goods industry conferences. Co-founders of the AvailabilityLab, their work reaches a world-wide audience. 4.27.22 Thomas W. Gruen and Daniel Corsten have been studying availability in consumer goods markets for more than twenty years, bringing a blend of operations and marketing to comprehensively address issues facing retailers and manufacturers. Supported by multiple grants from The Procter & Gamble Company, they have been addressing issues of out-of-stocks in consumer goods retail for decades. As the retail world shifted toward e-commerce, they pioneered research focusing on online availability. They provide a global perspective, focusing on Europe, North America, and Asia. Both are distinguished academics and retail industry experts. Through publishing, speaking, and consulting, their work reaches a worldwide audience.

Book preview

SHELF

CONFIDENCE

A Practical Guide to Reducing Out-of-Stocks

and Improving Product Availability in Retail

Thomas W. Gruen

and Daniel Corsten

Shelf Confidence

A PRACTICAL GUIDE TO REDUCING OUT-OF-STOCKS AND IMPROVING PRODUCT AVAILABILITY IN RETAIL

Copyright © 2022 Thomas W. Gruen and Daniel Corsten.

All rights reserved. No part of this book may be used or reproduced by any means, graphic, electronic, or mechanical, including photocopying, recording, taping or by any information storage retrieval system without the written permission of the author except in the case of brief quotations embodied in critical articles and reviews.

The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

iUniverse

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Because of the dynamic nature of the Internet, any web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Cover Design by Victoria Aróstegui

Cover art courtesy of Torkel Doehmers

ISBN: 978-1-6632-3851-1 (sc)

ISBN: 978-1-6632-3850-4 (e)

Library of Congress Control Number: 2022907871

iUniverse rev. date: 08/15/2022

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Praise for Shelf-Confidence

Product availability is a key measure of retail and wholesale excellence. It is key to ensure high customer satisfaction and as such future growth. This practical book provides industry benchmarks and best practices to improve availability online and offline.

Olaf Koch, former CEO Metro Group, Partner at Zintinus

"While the digitally-fueled pace of change may have been accelerated in recent times, Corsten and Gruen’s book, Shelf-Confidence, is essential reading for anybody who wants to understand why it still pays to get the basics in retailing right. Indeed, covering the retail basics has become all the more important in the wake of panic buying, empty shelves and poor substitutions, much as less when managing increased supply chain challenges emerging from the added complexity of selling online as well as in stores. As such, the breadth and depth of research, knowledge and insight shared in this book will also help industry practitioners and academics alike navigate the next wave of disruption."

Miya Knights, Author, Consultant and Retail Technology publisher

Out-of-stocks have been a perennial problem in retail. But it can be solved with a deep focus on collaboration and the consumer. The thorough and practical research in this book will help retailers take waste out of the supply chain, improve omni-channel product availability, and ‘change their game’.

Sir Terry Leahy, former CEO Tesco Stores

This book is a fabulous ‘one stop shop’ for any retailer or brand owner looking to improve their online and offline availability. As this book brilliantly illustrates, the rewards are significant.

Colin Peacock, ECR Retail Loss Group

Table of Contents (brief)

Praise for Shelf-Confidence

Foreword by Milan Turk, Jr

Preface by Marshall Fisher and Ananth Raman

Introduction: Past, Present, and Future of Out-of-Stocks and Availability

Part I: Examining On-Shelf Availability

Chapter 1 How and Why We Study Out-of-Stocks

Chapter 2 The Extent of Out-of-Stocks

Chapter 3 Consumer Responses to Out-of-Stocks

Chapter 4 Causes of Out-Of-Stocks

Chapter 5 The Financial and Managerial Implications of Out-of-Stocks

Part II: Improving On-Shelf Availability

Chapter 6 Identifying and Addressing Out-of-Stocks—Overview and Guidance

Chapter 7 Understanding the Total Cost of Out-Of-Stocks

Chapter 8 Understanding Out-Of-Stocks through Measurement

Chapter 9 Lowering Out-of-Stocks--Our Hypotheses and Studies

Chapter 10 How to Achieve and Maintain Lower Levels of Out-Of-Stocks

Part III: Understanding Online Availability

Chapter 11 Measuring the Extent of Online Availability

Chapter 12 Shopper Reactions to NOLA - Searching, Switching and Loyalty

Chapter 13 Estimate OLA Prize: Size and Implications

Chapter 14 Implement OLA Measures

Conclusion

Chapter 15 What Needs to be Done?

Afterword

Acknowledgements

Authors Bios

Literature, References and Resources

Table of Contents (detailed)

Praise for Shelf-Confidence

Foreword by Milan Turk, Jr

Preface by Marshall Fisher and Ananth Raman

Introduction: Past, Present, and Future of Out-of-Stocks and Availability

A. Why this book?

B. What is the structure of the book?

C. Who should read this book?

D. What is in this book?

Part I: Examining On-Shelf Availability

Chapter 1 How and Why We Study Out-of-Stocks

1-1. Study Background and Objectives

1-2. Methodology and Description of Studies

Chapter 2 The Extent of Out-of-Stocks

2-1. What Is an Out-of-Stock?

2-2. Extent of Out-of-Stocks Worldwide and by Region

2-3. Out-Of-Stock Extent by Category

2-4. Out-of-Stocks vary by Time of Day and Day of Week

2-5. Variation by Promotion, Movement and Duration of Out-of-Stocks

2-6. Conclusions from the Analysis of the Extent of Out-of-Stocks

Chapter 3 Consumer Responses to Out-of-Stocks

3-1. Consumer Response Types and Impact on Retailers and Manufacturers

3-2. Consumer Study Summary Findings

3-3. Consumer Responses Vary Across Categories

3-4. Consumer Responses Vary by Region & Country

3-5. Worldwide Responses by Category

3-6. Implications of the Worldwide Analysis

3-7. Additional Questions Regarding Consumer Responses

Chapter 4 Causes of Out-Of-Stocks

4-1. Out-Of-Stocks Causes by Region

4-2. Examination of Primary Root Causes by Process

4-3. Other Explanations or Attributions of Out-Of-Stocks

4-4. Determining Root Causes in a Retail Chain

Chapter 5 The Financial and Managerial Implications of Out-of-Stocks

5-1. Defining the Implications of Out-Of-Stocks

5-2. Quantifying the Losses Due to Out-Of-Stocks

5-3. Out-Of-Stock Fixes and Implications

5-4. Conclusions from Part I

Part II: Improving On-Shelf Availability

Chapter 6 Identifying and Addressing Out-of-Stocks—Overview and Guidance

6-1. Objectives and Key Findings

6-2 What is an Out-Of-Stock?

6-3 Guide to Using Part II

Chapter 7 Understanding the Total Cost of Out-Of-Stocks

7-1 Introduction: With All This New Technology, Why Isn’t Availability Higher?

7-2. A Generally Unrecognized Problem: The Costs of Out-Of-Stocks > Lost Sales

7-3. Root Cause Analysis Drives a Distinction of Store vs. Shelf OOS Conditions

7-4. We Know How Consumers Respond to Out-of-Stock Conditions

Chapter 8 Understanding Out-Of-Stocks through Measurement

8-1. Understanding the Measurement and Identification of Out-Of-Stocks

8-2. Focus on the Items that Result in the Majority of Out-Of-Stocks

8-3. Viewing Out-Of-Stock Patterns

Chapter 9 Lowering Out-of-Stocks--Our Hypotheses and Studies

9-1. Making the Case for Item Data Accuracy

9-2. Making the Case for Inventory Accuracy

9-3. Demand Forecasting Accuracy

9-4. Having the Goods You Need When You Need Them

9-5. Making Room on the Shelf: The Case for Demand-Based Planograms

9-6. Knowing Where Everything Should Be: The Case for Planogram Compliance

9-7. Knowing Where Everything Should Be: Keeping the Shelves Straight

Chapter 10 How to Achieve and Maintain Lower Levels of Out-Of-Stocks

10-1. The Ability to Measure Provides the Ability to Focus

10-2. Taking Action—Store or Shelf Related?

10-3. A Comprehensive Approach to Reducing OOS Events, Duration, and Losses

10-4. Focusing on High-Demand Items

10-5. Bringing It All Together—Our Conclusions

Part III: Understanding Online Availability

Chapter 11 Measuring the Extent of Online Availability

The Organization of Part III

11-1. Methodology and Definitions

11-2. Worldwide Extent

11-3. Extent by Country

11-4. Extent by Online Category

11-5. Extent Perceived by Online Shoppers

Chapter 12 Shopper Reactions to NOLA - Searching, Switching and Loyalty

12-1. Methodology and Definitions

12-2. How Shoppers Encounter NOLA

12-3. Reactions to NOLA

12-4. Detailed Switching Behavior

12-5. Online Shopper Types

Chapter 13 Estimate OLA Prize: Size and Implications

13-1. Losses and Opportunities

13-2. Who Loses: Retailers or Brands?

13-3. Opportunity for the Industry

Chapter 14 Implement OLA Measures

14-1. Methodology

14-2. Measurement and Extent

14-3. Consequences of NOLA

14-4. Causes Out-of-Stocks and Voids

14-5. Strategy and Countermeasures

14-6. Five-Step Approach to Addressing OLA

Conclusion

Chapter 15 What Needs to be Done?

15-1. Align Leaders

15-2. Deploy Technology

15-3. Improve Jobs

Afterword

Acknowledgements

Authors Bios

Literature, References and Resources

Foreword

If you have chosen to open this book and read this foreword, you are surely already aware of the enduring impact of out of stocks in the retail world and particularly for consumer packaged goods. You are already aware – and likely from personal experience as well! – how frustrating it is to the consumer to encounter an out-of-stock. For the consumer, it isn’t so much encountering an out-of-stock as it is simply not finding what I need when I need it which truly gets to the heart of delighting the consumer who has increasingly higher expectations of service. If you have chosen to open this book and read this foreword, you are on a mission! You want to understand what the foremost research in the industry has discovered and documented about the issue of out-of-stocks around the world, you want to understand the insights and conclusions about how to resolve out-of-stocks, and lastly, you are interested in what must surely have changed as the consumer goods and retailing industries have entered the digital era and developed successful eCommerce executions. There’s good news for you, Shelf-Confidence will provide you with an invaluable collection of documented research, tested insights and actionable conclusions from twenty years of studying the out-of-stock issue.

Over the two decades of collaboration that produced the studies in this book, the impact on commercial thinking has been profound. Several generations of industry Sales and Product Supply managers in the CPG industry have cut their teeth on the learnings in these studies, leveraging them as the basis for value creation between manufacturer and retailer trading partners with the objective of providing a better operational outcome for the consumer. At Procter & Gamble, we built customer engagement agendas for our innovation centers around the Part 1 study insights on how consumers respond to out-of-stocks (see the chart on pg. 20). The clarity on how both manufacturers and retailers lost sales from out-of-stocks made it a primary focus for action planning with benefits from investment accruing to each trading partner. This approach continued into the advent of eCommerce.

As 2021 begins, most of us are optimistic about getting back to business as usual as the world gradually emerges from the worst period of the pandemic. I am regularly talking to business leaders engaged in developing their playbook for solid execution and growth in 2021. Many are framing their questions as what should we do now, and what must we learn next. I strongly recommend the insights in this book as a foundation for driving healthy growth in 2021 and beyond – think of it as vital to relearn this now! Of course, we won’t be getting back to business as usual, and it will take some time to fully understand the impact of the pandemic on consumer expectations, shopping habits, supply chain design and retail execution. The high levels of out of stock seen on hygiene products in mid 2020 have largely been resolved, but it was a good reminder of how fundamental the concept of product availability is to our industry. Regardless of where we land, it is a safe bet to assume that shopper expectations, either in-store or on-line, for an easy shopping trip, with a high level of service anchored by availability of the products they are looking for is here to stay. Refreshing our understanding of the causes of out-of-stocks and the most effective solutions is a no-brainer in 2022.

To wrap this up, I want to recognize the team of leaders at Procter & Gamble that collaborated with me and the authors over the years. Foremost among these is JP Brackman who was truly hands on in ensuring that value was created from Procter & Gamble’s sponsorship and commercial application of the studies. Jim Flannery had the vision to initiate the work and launched it in the Procter & Gamble selling community. When Colin Peacock joined Procter & Gamble from Gillette, he was already passionate about solving out-of-stocks. He brought his best thinking to how we could apply the studies with customers. Lastly, I appreciate the partnership of Erica Heskamp who brought her supply chain expertise in eCommerce to the later studies and ensured we were always aware of the particular aspects of eCommerce when it came to making product available for sale.

Professors Tom Gruen and Daniel Corsten are two of the finest collaborators you could ever find in academia. My experience in commercial innovation is that thought leaders from academia bring resources and approaches to commercial questions that are not found elsewhere and that enhance the overall outcomes and that has certainly been the case here. Remember too, the duration of this collaboration! Many internal teams cannot claim 20 years of value accretive collaboration, it is quite unusual in an external relationship. Of course, it helps that our industry continues to evolve and look for new ways to attack the lingering issue of out-of-stocks. I look forward to reading about what Daniel and Tom propose in the next generation of their research, and I feel certain it will of value to you as well.

Milan Turk, Jr., former Vice President, the Procter & Gamble Company

Preface

Shelf-Confidence summarizes 20 years of research on global grocery retail inventory stockouts and finds that despite the emergence of many potentially useful technologies, grocery retail in-stocks have not improved over the last two decades. This is a very important book for academics and managers. It brings rigor to a problem that, though extensively studied in academia, lacked empirical support prior to the sequence of studies documented in this book. The research documented in the book has had significant impact on academia (where it has been cited hundreds of times in the academic literature) and on practice. The impact is testament to the authors’ intellect and energy but also to their persistence. Younger scholars should hopefully see the merits of studying an important problem for a long period of time.

We have known Daniel Corsten and Tom Gruen for a number of years. It was over 20 years ago that the two of us met Daniel for the first time. He had just joined the faculty at the University of St. Gallen in Switzerland. Soon after, he visited Wharton and spent some time with Marshall. Following the initial introductions, Daniel became a regular contributor at the Consortium for Operational Excellence (COER) conferences that the two of us organize annually. Somewhere around the same time, Daniel started collaborating with Tom (then at Emory University), who also started participating in COER conferences.

All of us routinely experience stockouts even of commonly purchased items at leading retailers that we frequent. Indeed, as one of us was thinking about what to say in this foreword, his spouse returned from her weekly grocery shopping trip to lament that her favorite store, as usual, was out of many items on her list, so she’d have to go out again to her by far second favorite store to complete the weekly shopping. Stockouts are even more pronounced in products like apparel and footwear, where size mix and short lifecycles make it harder for retailers to stay in stock of the desired SKUs in specific sizes.

In multiple studies conducted over decades, Daniel and Tom have shown that roughly 8% of the items have been and are stocked out in grocery retail broadly. The finding was – and remains -- surprising because most managers target, and believe they achieve, 95%-99% in-stock rates (i.e., 1-5% out-of-stocks) in their stores. Academics like us – and leaders that we have spoken to and taught in many consumer goods manufacturing companies – also shared the perception that stockouts were less common than they actually are. While the proportion of out-of-stock items varies among regions and product categories, it has not improved over time, in spite of the increased use of technology and the attention drawn to the problem by studies like the ones showcased in this book. Clearly, much work needs to be done on this problem.

The book is full of interesting data and suggestions that managers can follow to reduce out-of-stocks in their retail supply chains. Two findings in the book resonated with us and are extremely important for academics and practitioners. Setting optimal inventory has received substantial attention in the academic literature. Two assumptions are common to much of this literature: that the on-hand inventory level of an item and the cost of a stockout are known precisely. Daniel and Tom have shown that these assumptions are usually not satisfied.

Let’s start with on-hand inventory levels. Roughly 25 years ago, the two of us launched what would eventually become COER. One of our first steps in the research was to visit each of the 32 retailers that had agreed to participate in our research and over two days interview a number of managers at each of these retailers. Our assumption when we launched our research project was that retailers had lots of data but needed ways to use the data better to make better operational decisions. At the first retailer that we visited, a merchant told us that her inventory records were inaccurate, and it was hard for her to know what was available in stock. We were shocked and assumed this retailer was an exception. However, over the next few months we realized that other retailers’ inventory records were also usually inaccurate. In 1999-2000, we studied inventory records from a leading retailer and found that 35% of the inventory records were accurate at the time of physical audit. In other words, 65% of the inventory records were inaccurate (i.e., the physical and system inventories did not match). Daniel and Tom find that physical inventory accuracy (where the physical inventory exactly matched the recorded on-hands) ranged from 32% to 45% in four studies that they examined or conducted. So our finding of 35% accuracy was within their broad range of 32-45%. Is it any wonder managers targeting a 95-99% in-stock rate actually achieve a much worse result when they don’t even know how much they have in inventory?

Daniel and Tom also shed light on the cost of a stockout. Understandably, the cost of a stockout differs for the manufacturer and the retailer and depends on what the shopper does in response to the stockout. If a shopper substitutes the stocked-out item with an alternate