How to optimise your product’s on-the-shelf availability
An empty shelf where your product should be, inevitably leads to lost revenue. The majority of customers will opt for a similar product from the competition in the adjacent isle or don’t purchase the item at all. Research has shown the potential revenue gain through on-shelf availability optimization can be as much as 29%. This article covers the context in which on-the-shelf availability is becoming increasingly important for Sport and Leisure brand owners and will highlight key areas where improvements can be made.
After a century the days of bi annual fashion cycles are officially over. Nowadays even renowned companies, including the likes of Prada and Louis Vuitton are changing their strategies to produce four to six collections instead of two a year. In addition, the economic recession has triggered increased price consciousness among consumers making them less loyal to brands. This is especially true for the less fashionable, more practical sports and leisure brands. As a result it is becoming increasingly difficult to achieve on-the-shelf availability for the entire product range. Further to the lost revenue due to out-of-stock events, an additional negative effect is customer frustration which can lead to further detachment from the brand.
On top of it all, private label brands have been gaining ground. According to financial institution, Rabobank, market share for retailer brands has increased rapidly over the years, most notably in the UK, Spain, Germany, Italy and the Netherlands. Retailer brands are estimated to have achieved at least 40% market share in five countries. In the UK and Switzerland, private label accounts for one of every two products sold. In this context uninterrupted availability of a brand-owner’s product in the stores has become vital for the brand’s survival.
The sports and leisure industry is characterized by high seasonality and specifically fierce competition on retail space. The brand owner’s or distributor’s challenge is getting the products to and keeping them on the shelves of the retailers. The critical success factors in this challenge are:
- Demand forecasting
- Assortment size
- Order and delivery process
- Products display size
- Stock list accuracy
Accurate demand forecasting is the starting point through which all supply chain operations must be planned. Traditionally we see these forecasts made on basis of historical sales data. Nevertheless sales volume does not necessarily equal customer demand as it does not always take into account the Out of Stock events. For new products an accurate forecast of sales volumes ultimately depends on the commitment of the retailers. Depending on the quality of the relation sales has with the retailer can be overly conservative in his estimates in case the forecast represents a minimum quantity. Preferably a retailer should be motivated to provide an ambitious forecast without any contractual/purchase obligations.
A disciplined approach to optimize the product range and a relentless scrutiny on products outside the core portfolio is key to maintain high product availability. There is a natural tension between ‘building the brand’ by expanding the range of products and keeping the number of products manageable and therefore availability high. A mindset towards optimizing the current portfolio should be embedded in the company culture and become second nature to its employees.
“Relentless scrutiny on products outside the core portfolio”
Order and delivery process
The use of planning sheets for the end-to-end production process and a timely order process are obviously the basis of getting your goods on the shelves in time. A stable relation with one or a limited amount of logistics service providers can help to ensure capacity in the container and provide a reliable service for emergency aircargo service for out of stock sizes. Furthermore the tipping point of the most economical shipping costs of an LCL (Less than container Load) compared to an FCL (Full Container Load) is often lower than one would expect. In combination with volume discounts at the manufacturer this makes larger volumes extra attractive from a cost perspective. The order and delivery process is often characterised by huge volume/cost breaks. It is important to calculate the total landed costs of a wide range of scenarios and the advantages associated with each supply model.
Product Display size
The larger the retail space per product, the larger the buffer to prevent out of stock. The reality however is fierce competition for product display surface often side-by-side direct competitors. A larger area in the store often also means more possibilities to exchange slow rotating products that are out of stock with available stock of fast movers. Retailers that provide brands with sufficient space for a complete concept will get more attention from the sales/merchandise organization making sure the product range is optimized for the store and prevent the popular style/size/color combinations getting out of stock.
Stock list accuracy
Accuracy of stock forecasts and availability is greatly improved through the integration of specialised warehouse management systems into the planning software Having up-to-date and sufficiently detailed information on quantities on stock and on order is crucial for a smooth supply chain. Radio Frequency scanning upon each movement of the stock and real-time availability of this data will support decision making and ultimately lead to increased availability of the products.