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BUSINESS                                                         September 2003 Issue


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Out of Stock

Full shelves means happy customers and singing cash registers.

Every transaction counts for retailers amidst the current economic gloom, but a study has found that they could be losing up to 5 percent of total sales every month and be running the risk of losing customers for good due to insufficient stocks

Out of stock (OOS) is a common phenomena in the fast moving consumer goods (FMCG) market. A study conducted by the National Association of Convenience Stores in the U.S. showed that consumers would typically stop shopping at a certain store after encountering the "out-of-stock problem" for an average of 2.4 times.

The local FMCG sector agrees with the findings. ECR Hong Kong, the local retailers, distributors and manufacturers league in the FMCG industry, kicked started their own industry-wide OOS study in 2002 to examine the stock levels at retail outlets. The study aims to establish a standard OOS definition, to provide data indicating OOS at retail level on a weekly basis, to establish a local OOS benchmark, and to promote co-operation between suppliers and retailers.

Originally designed as a half-year project, the Hong Kong OOS study has now become an on-going project with the backing of the industry and has so far yielded some interesting findings.

Outlet Types    Different types of outlets have their own areas of expertise as reflected by their OOS levels of different product categories. In general, supermarkets were comparatively better in maintaining stocks of grocery and household items, convenience stores in alcohol and drug stores in baby items and toiletries.

Product Categories    A 24-week trend showed improvement and convergence for product categories like alcohol, toiletries and beverages. Some individual lifestyle items displayed supply problems.

Brands Performance    Certain brands demonstrated high OOS levels for bread, dog food, lifestyle groceries, ice cream, snacks and beverages.

Sponsored Lines vs Non-Sponsored Lines    Sponsored lines stood up better than non-sponsored lines. This implies that items with visible shared data received extra attention and lowered the OOS level when compared to those with information withheld. In fact, since the launch of the study in 2002, by February 2003, the OOS level among participating retailers dropped to 1.6 percent from the original 4.5 percent.

Underlying Causes of OOS & Solution

There are a number of underlying causes which lead to OOS in Hong Kong, the most common of which are: too many items on shelves, inefficient refill, delayed ordering, supply problems in-direct store delivery and cross-boundary delivery, fluctuating demand due to sporadic promotional sales and inaccurate forecasting.

Another study by IBM Consulting (previously PWC Consulting), narrowed down the cause of product unavailability to three root causes: the product did not get to the store; the product got to the store, but did not get to the shelf; and the product got to the shelf, but was not recognised as a sale.

The study found that upstream supply chain issues only contributed between 12 percent and 15 percent of the OOS problem, with the prime problems being in the backroom of retail outlets -- the last fifty feet of the value chain.

Improving product visibility through the use of automatic data capturing and inventory control systems would help alleviate this problem. By closely monitoring the quantity and whereabouts of goods down to shelf level, retailers can activate the replenishment process before running out of stock. Such systems also help in optimising inventory level and freeing up cash flow, which benefits both consumers and retailers.

Join the Study

An increasing number of suppliers and retailers are joining the Hong Kong OOS Study to monitor their product performance and strengthen their weaknesses. Interested parties can contact the Hong Kong Article Numbering Association at info@hkana.org to find out more about the study and supply chain initiatives.

Provided by HKANA.


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