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Stockouts on retail shelves indicate the need for fast and flexible replenishment.
I was recently at a leading pharmacy chain in San Diego and saw that milk cans were completely stocked out. Seeing empty shelves on Saturday morning was quite alarming, considering that demand normally picks up over the weekend. The stockout wasn’t limited to any one brand or a set of skus, the complete shelf was empty!
I checked with the store manager and he mentioned that milk supplies are scheduled on Tuesdays and Fridays.
The situation is not unique to this specific pharmacy chain. I have seen many retail chains operating on fixed schedule replenishment, leaving them vulnerable to long periods of stockout. We know that empty shelves in retail stores are a major reason for revenue and profit loss!
How do we solve it? Wherever fixed schedule replenishment is implemented, we need an exception management system in place, which alerts if the stocks are too low. We also need suppliers with flexible delivery schedules who can supply at a short notice in such exceptional cases.
In the long run, of course, a combination of good demand sensing algorithm, coupled with flexible and responsive supply chain is a must for retailers to survive and thrive.