How Should CPG Experts Define Out-of-Stocks?
The best way to define them is to get a first-hand look into the industry’s perspective. The Food Marketing Institute/Grocery Manufacturers of America Trading Partner Alliance conducted a survey to further understand how (OOS) issues are being addressed and how on-shelf availability (OSA) is being pursued. Survey results outlined four critical areas demonstrating the gap between current practices and desired performance including metrics/data, process/planning, organizational issues, and technology.
Out of the four categories, the largest problem is found in metrics/data, due to the lack of a standard definition of OOS. Surprisingly, there are three different ways organizations measure OOS, creating an absence of standardized data across the industry. With retailers and manufacturers reporting similar metrics, the following data is representative of retailers:
- 43% use the Zero On Hand Metric: The number of instances an authorized item’s perpetual inventory fell to zero or below the total store item variations. An example of falling below the total variations would be if out of two sizes of breakfast cereal, only one was left, the item would then be marked OOS.
- 29% use Zero On Hand w/ Lost Demand Triggers: Once the inventory falls to zero, the demand trigger begins to measure the amount that would have been sold if the item was in stock, allowing retailers to see the revenue lost as a result of OOS.
- 21% use Minimum Display Values: The minimum amount of units the retailer will accept for merchandising an item on-shelf. An example of this would be if there was room for 7 boxes of breakfast cereal and there were only 5 since it is below the minimum amount, the item would be marked OOS.
So What’s the Best Defenition To Use To Measure Out-of-Stocks?
With this information, it is now evident that the problem lies within the lack of a centralized form of measurement. For the industry to achieve their desired results as a whole, companies must move towards a zero on hand baseline definition of OOS to facilitate communication and standardize data exchange. The desired outcomes of retailers and manufacturers will not be achieved until these gaps are addressed.
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