The Best Way to Prevent Stockouts in 2022
Out-Of-Stock, Out-Of-Mind, Out-Of-Business
The definition of a “supermarket”, according to the Oxford dictionary, is a “large shop that sells food, drinks and goods used in the home. People choose what they want from the shelves and pay for it as they leave.” This basic description details the simplest function of the grocery business as far as the consumer is concerned.
This is a supermarket’s fundamental reason for existence and it has been since the very first supermarket, the Piggly Wiggly store, opened its doors on the 6th of September 1916 in Memphis, Tennessee.
The average customer simply wishes to be able to obtain the common goods that they want from their store of choice’s shelves. A very low expectation as we approach the year 2022 or, at least, one would think.
Today, over one hundred years after the first supermarket opened its doors, the average Out-Of-Stock rate is 8%. This is an unnecessarily high loss of sales for retailers given the sophisticated retail technology that currently exists.
It means that one out of every thirteen products is not purchasable at the time when a customer wishes to purchase it in the average supermarket. This rate increases to 10%+ when it comes to discounted products or products that are part of a promotional activity.
The Real Cost of Empty Shelves
Needless to say, retailers and their suppliers lose out big time from a revenue perspective. The current cost of Out-Of-Stock products is $634 billion per year for the global retail sector. That’s more than the entire GDP of the majority of countries in the world. For the average retailer, that’s a loss of 5% of in-store sales due to stockouts alone.
Loss of sales for retailers aside, consider the impact of Out-Of-Stock products on the customer experience and a customer’s relationship with your brand. 31% of consumers go on to buy from another store when they experience a stockout, which means they become a potential churn risk as they take their business to another retailer.
The same goes for the suppliers of Out-Of-Stock products and their associated brands with 26% of consumers likely to switch to another brand and potentially never switch back.
Over one hundred years have passed since the opening of the first supermarket and despite so much time for advancement, it’s easy to see that the majority of retailers still fail to offer the most basic service to their customers. Most supermarkets and retail stores still fail to maintain optimum stock levels and prevent Out-Of-Stocks.
The modern supermarket is broken. To fix it, retailers need to implement the best on-shelf availability technology in retail. Let’s take a look at how.
Starting With What You Know
In order to diagnose on-shelf availability issues effectively, retailers should start by collecting the appropriate data by looking at their current operating model. This means understanding the real-time situation of on-shelf product availability in your stores and identifying where the gaps exist.
This doesn’t have to be complicated. We recommend starting manually before you move on to more sophisticated, automated retail solutions. By doing so, you can assess the real impact of Out-Of-Stock products for your specific retail business.
By carrying out a dedicated, manual audit of shelf availability over a determined period of time, you can sample the problem and get a real feel for the extent of sales your business is losing as a result of stockouts.
In practice this means deploying a dedicated team to monitor stock levels for a specific store at all times during a sampling period. The team should restock product as soon as a gap occurs on a shelf.
Take the increased sales results from this experiment and compare them to the same time period in previous months and you’ll quickly see the benefits of tackling the problem with a more robust, long-term solution that prevents unnecessary losses.
This exercise will help identify potential problem areas in store as some product lines are likely to be causing more of an issue than others. This also has the additional benefit of helping you improve any supplier issues that may exist in your stores.
Analysing the Gaps
Once you’ve identified that gaps exist and where they exist, you can then begin to consider why they exist.
Are there patterns for a specific line of products being Out-Of-Stock?
Do you notice trends when stockouts have typically occurred in the past?
Is adequate demand forecasting being carried out by your team to plan effectively and avoid Out-Of-Stock situations?
Have you considered the lead times for each SKU (stock-keeping unit) and ensured that you have established them sufficiently with your suppliers?
Is the product missing from the shelf because a store employee didn’t bring it from the back store?
Is the product Out-Of-Stock because the SKU is not active anymore?
Is there an issue with the supplier which has resulted in a late delivery?
Was the correct amount of product ordered to begin with?
These are just some of the many questions one should consider when effectively addressing product availability.
As you seek answers to these questions and continue to collect more data on the stockout problem, you will also begin to see how unnecessarily difficult this information is to obtain when you need it. This is due to the many different systems and stakeholders involved in getting each product to shelf, often hindered further by legacy issues that are inevitable for mature retail chains.
With this in mind, it’s time to consider what the best on-shelf availability solution looks like for your retail business in 2022.
Building an Optimum On-Shelf Availability System
Take a look at how you are currently managing Out-Of-Stocks in each of your stores. Consider what can be automated. Repetitive, manual tasks are the perfect candidate for automation.
Having someone walk down each aisle and visually, or even with the use of a barcode scanner, identify gaps on shelves so that they can be filled is an unnecessarily onerous task for something that can be easily automated.
Processes like this are also particularly prone to human error which the use of the right technology removes entirely.
At any time, you should be able to easily access a real-time view of each shelf and product in any your retail stores. It should provide you with current shelf stock levels per SKU, the amount of backup stock in storage, expected throughput for a given period, and the option to visually inspect any shelf remotely if you desire.
This is true, real-time shelf monitoring that any modern on-shelf availability solution should provide.
Human + Machine = The Perfect Team
The best on-shelf availability system is also the one that you don’t even notice exists, one whose infrastructure is unnoticeable to the average customer. It is a perfect blend of people, process and technology working seamlessly together to achieve a common goal.
It isn’t about automating people out of a job, it’s about enabling your workforce to perform at their best. It also shifts staff focus from menial tasks to more complex, engaging work that humans are best at.
You should use technology to do what it does best, empower your staff. An effective solution should be able to send automated notifications to store staff, informing them of a stockout as it occurs.
From Reactive to Proactive Stock Management
The final consideration is whether your on-shelf availability solution allows you to simply react to a stockout or get proactive with a deep root cause analysis. This goes beyond preventing Out-Of-Stock products to having the right stock available in-store according to ever changing demand.
Instead of reacting to issues in your supply chain you should seek to understand the underlying problem and address the root cause so that the stockout never happens again.
For retailers, real-time shelf monitoring is really just the beginning. A solution that connects with the different components of your supply chain is one that is truly powerful and effective.
It should be able to complete Out-Of-Stock root cause analysis to determine the reason for specific stockouts so that your staff can take action to prevent them from happening again.
Insights In Sight
This level of insight helps improve supplier relationships and gives you a lot more control over the performance of each store at the SKU level. By having a detailed, real-time view of your on-shelf inventory as well as expected sales data you can then decide what the most effective form of inventory storage is for each of your locations whether it’s consignment inventory, vendor managed inventory, safety stock etc.
The retail solution described above can be achieved using your existing systems and full-time dedicated staff to ensure that no Out-Of-Stock issues occur during daily operations (human error aside) but the human cost of such an endeavour inevitably reaches diminishing returns pretty quickly.
Fit for purpose, automated on-shelf availability technology, on the other hand, allows you to tackle the problem effectively and achieve economies of scale. This is all made possible by the power of artificial intelligence and a powerful new technology called Synthetic Computer Vision.
An AI-Powered Solution
Neurolabs is automating on-shelf availability at scale using the approach described above. We deploy a powerful combination of Artificial Intelligence and Computer Vision to create real-time shelf monitoring and Out-Of-Stock root cause analysis for supermarkets and retail stores.
We completely digitise each of your SKUs by creating a virtual 3D model of each of them. We then use these 3D models as the synthetic data to train our AI software to detect the real versions on your supermarket’s shelves via in-store cameras. This is the first step towards truly automated, real-time shelf monitoring that puts an end to Out-Of-Stocks, using Synthetic Computer Vision.
Automating Real World Retail With Virtualisation
We specialise in the use of synthetic data as it allows us to rapidly scale our solution across thousands of SKUs with ease. This is radically faster than the traditional computer vision approach. It also means that our software can adapt to product changes before a product hits the shelves, meaning no interruption to service if a product’s packaging is updated.
We use cameras to carry out the detections. Depending on existing infrastructure, existing hardware can be used, otherwise new cameras are installed to monitor shelves in real-time. We have found that fixed cameras result in higher performance than a mobile solution.
Empowering The Retail Workforce
When an on-shelf stockout is detected, an automated alert is sent to store staff to inform them of the issue so it can be resolved ASAP. A number of automated checks are then carried out with each element of your supply chain system to determine the root cause. The results of this are then sent to the store manager for resolution.
This gives each store real-time visibility of on-shelf availability, allows them to respond to Out-Of-Stock products instantaneously, and most importantly, helps prevent future stockouts from occurring by tackling the individual underlying issue.
Neurolabs’ On-Shelf Availability solution does more than just check stock on shelves:
It automates the manual process of on-shelf stock checking
It helps get to the root cause of an Out-Of-Stock
It increases revenue per store
It creates happier customers
It is easily scalable per store and across retail locations
It is a no code technology with option to take a peak behind the scenes
It avoids data privacy issues by using synthetic data
We integrate with any other retail system seamlessly (We work seamlessly with RPA technology such as UiPath to create bespoke automations)
It is rapidly adaptable to product changes (Detects new products and packaging before they hit the shelves)
It performs effectively in challenging retail production environments (In places where traditional computer vision (CV) solutions struggle)
It is extremely precise vs conventional CV methods
It is cost-effective
The Future of Retail Technology
As we enter 2022, Out-Of-Stock products in supermarkets need to become a thing of the past. The use of AI technology is proven to resolve the issue.
Effective implementation presents a very big opportunity for successful retailers who are willing to innovate with a sophisticated and capable solution in the retail space.
Using the Synthetic Computer Vision approach described above, the technology can be used for more than just monitoring stock levels on store shelves. It is set to become an important retail trend in the years to come.
With this unique approach to product detection, you can automate each stage of an SKUs journey, from manufacturing and distribution, to in-store inventory and checkout. The real question then is not whether or not you should automate your on-shelf availability, but when?
Time For A Check Up?
How are you currently managing on-shelf availability for your retail business? Our team of experts is laser focused on solving complex retail challenges like on-shelf availability so we’d love to hear from you.
We work with the fastest growing supermarkets and retail technology partners in the industry to implement state-of-the-art retail automation solutions.
Any processes in your supermarket that involve the manual handling of an SKU could be the perfect candidate for applying Synthetic Computer Vision and unlocking the benefits of automated workflows for your retail business.
The use of Synthetic Data drastically shortens the implementation time of our on-shelf availability solution when compared with the main alternatives on the market today.
Even if you’re not ready to make the jump to implementing an automated system to handle your out-of-stocks just yet, we’re always interested in discussing the best practices for improving retail processes at scale.
For tips and advice on the best ways to avoid stockouts, reach out to the Neurolabs team and we’ll be happy to help!
Retailers worldwide lose a mind-blowing $634 Billion annually due to the cost of poor inventory management with 5% of all sales lost due to Out-Of-Stocks alone.
Neurolabs helps puts an end to Out-Of-Stocks using a powerful combination of computer vision and synthetic data, improving customer experience and increasing revenue.