ECR Community Shrink & OSA Group
Welcome
Inventory Record Accuracy Webinar – November 19th 2019
Colin Peacock
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ECR Working Group on
Retail Losses
Working Group established in 1999Create new knowledge, tools and techniques for ECR members
Benchmark and learn together at working group meetings
Build definition around best practices and good collaboration
Retail Loss - Size of Prize
Lost Sales (Profits) from Shelf Out of Stocks (0.78%)
Unknown Stock Losses (0.67%)
Food Waste in Retail (1.64% of Sales) – Markdowns & Throws
Participants
Todays Webinar
Launch the Report – Academic Team
Retailer Response – Tesco
Questions Use Tab
Send to [email protected]
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- 4 -ECR webinar – November 19, 2019
Yacine Rekik, Aris A. Syntetos, Christoph H. Glock
Inventory Inaccuracy in Retailing:
Does it Matter?
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About us
Christoph Glock
Professor atTU Darmstadt
Yacine Rekik
Professor atemlyon business school
Aris Syntetos
Professor atCardiff Business School, Cardiff University
With the participation of 7 European RetailersSupported by:
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Background and objectives
Inventory inaccuracies are a major issue in retailing
Physical stock is (typically) less than what we think it is
Prior research found that incorrect inventory records may range between 65% - 80%
It make sense to assume that inaccuracies lead to reduced sales, or conversely,reconciling inventories may only lead to an increase in sales
We will see later that positive stock discrepancies are also possible, still leadingthough to reduced sales!
The problem has been established; we are not here to argue for itsexistence
Rather, we wish to turn a speculation into a trustworthy conclusion.
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The problem: how inaccurate stock records may trigger stockouts
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Objectives of this project:
1. To what extent are inventory records inaccurate in retailing?
2. How do inventory records deteriorate over time?
3. How does an improvement in inventory record accuracy affect sales?
We investigated the above research questions with the help of a test-controltype experiment.
Background and objectives
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Experiment I
This experiment helps us to answer research questions 1 and 3.
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This experiment helps us to answer research question 2.
Experiment II
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The retailers
Seven retailers participated in this project:
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% of incorrect inventory records
In 60% of the audited SKUs, the (physical) quantity on stock did not match the quantity displayed in the information system at the time of the stocktake
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The share of SKUs affected from inaccurate inventory records per retailer
% of incorrect inventory records
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% of incorrect inventory records by retailer category
Inaccuracy is not always a matter of shrinkage: it could be positive or negative
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Direction of the stock record discrepancy by retailer category
Magnitude of the positive and negative inaccuracy:
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Classification of SKUs by turover and discrepancy contribution (Grocery)
Fast Movers: few SKUs with a high contribution to both sales and discrepancies
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Discrepancy contribution of different product categories (retailer d)
Discrepancy is strongly linked to the SKU category and number of SKUs handled by the department
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Stock record deterioation over time
Stock Accuracy moves from 40% to 20% in 14 weeks:
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Stock record deterioration over time per category
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Sales increase resulting from better stock accuracy per retailer
The benefit resulting from the stocktake is positive for all retailers with an average of 6%
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Average percentage sales increase by product class
Fast Movers benefits more from stock accuracy
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Average percentage sales increase by discrepancy class
High Discrepancy SKUs benefits more from stock accuracy
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Average percentage sales increase by direction of inventory discrepancy
There is a positive sales increase for SKUs subject to both positive and negative discrepancies
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Average percentage sales increase per product category (retailer d)
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Summary
We have found the IRI problem to be as big as previously reported
But we have shown it to be associated with different magnitudes in different sectors
This should be considered when benchmarking against average performances
If the sales opportunity is to be taken into account, the IRI problem is(much) bigger than previously thought to be
This is true across the board in the retailing industry
Positive discrepancies are as common as negative ones
It is not all about shrinkage; backroom operations may help explain the problem too
And information about this should be useful for targeting the right IRI drivers
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Summary
Removing IRI from the stock records benefits fast movers and highdiscrepancy items the most
An immediate strategy would be to concentrate on high discrepancy fast movers
Counting these items more frequently could help avoid costly stock counting routinesthat often target the entire product portfolio
We have also found that we need to change our perception on counting
Stock takes are perceived a necessity – and they are indeed!
They are also though an opportunity to boost sales
Stock takes and their timing should be seen as a sales increasing strategy
Their cost needs to be contrasted to the potential sales increase before relevantdecisions are being made
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Practical recommendations
Check which type of IRI (positive or negative) is bigger
If negative, look at shrinkage. If positive, look at your backroom!
Repeat the experiment described in our report and calculate the salesincrease that stocktakes can generate
Contrast that to the cost of the stocktakes and then you have a good idea about yourreturn on investment
Rethink the purpose of stocktakes
Prioritise your efforts in sorting out IRA
The ‘law of vital few’ applies here too
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Next steps
Preventive:
Prevent errors by best operational practices; for this we need to understandthe errors’ sources
Corrective:
Correct more frequently and in a more intelligent manner the stock record byoptimising the audit policy
Predictive/Anticipatory:
By using Artificial Intelligence techniques, deduce data patterns warningmanagement that stock accuracy starts to impact sales.
- 29 -ECR webinar – November 19, 2019
Yacine Rekik, Aris A. Syntetos, Christoph H. Glock
Thank you
Todays Webinar
Launch the Report – Academic Team
Retailer Response – Tesco
Questions Use Tab
Send to [email protected]
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Inventory Record Inaccuracy:A Retailer Perspective
Hannah NewtonLoss Prevention & Analytics ManagerSafety, Security, Shrinkage & Service DepartmentTesco PLC
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Perception vs. Reality
60% of inventory records are inaccurate
A count can deliver a benefit, regardless of the outcome
Fast moving lines are less accurate, but deliver more sales
• Significant risk to ordering accuracy - most systems assume that inventory records are accurate!
• Should we be investing as much in improving inventory record accuracy as we do into improving ordering algorithms or forecast accuracy?
• Both positive and negative corrections can drive a sales benefit
• This challenges the perception that products only benefit from counts when there is a need to replace missing stock
• The results show that one size does not fit all - sales benefits diminish significantly on slower movers and products with smaller discrepancies
• Should we be completing more targeted counts to obtain better value for money?
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Understandingyour root
causes
Validating your opportunity
Invest in accuracy, not just counting
What drives your inventory record inaccuracies?
Articulating why this is a problem worth fixing
How to successfully deliver a sustained benefit
3 Step Action PlanHow could you deliver these sales benefits in your own organisation?
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1. Understand your root causesThe drivers of inventory record inaccuracies will vary from retailer to retailer, so it is important to understand your unique challenges.
Identify the contributors to inventory record inaccuracies in your retailer, for example:• How do you alter stock records?• How often do these processes happen?• How likely are they to cause inaccuracies?• What is the average size of these inaccuracies?• Are they positive or negative?
Once you have identified the major drivers then it may help categorize these:• Inaccuracies caused by upstream processes e.g. delivery accuracy, invoicing errors• Deliberate inaccuracies e.g. automated counts• Avoidable inaccuracies e.g. manual adjustment errors, poor replenishment• Unavoidable inaccuracies e.g. shrinkage
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2. Validating your opportunityThere are many ways you could validate the size of the prize attached to improving inventory record accuracy in your organisation.
Minimum:
• Benchmarking against the retailers in the study. Use your existing inventory count data to measure your own inventory record inaccuracy, and compare with the results achieved here.
• Evaluate the cost of inventory counts in your retailer. What is the cost of these as a % of sales? What uplift would you need to achieve a return on investment?
• Does your organisation already have measures to approximate the value of missed sales? Do these align with the sales opportunity identified by the study?
Optimum:
• Repeat the experiment! If you don’t want to invest in a whole-store experiment, then consider tailoring it to the areas where you think have the most opportunity
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3. Invest in accuracy, not just countingWhen defining a strategy to tackle inventory record inaccuracies, be clear on your long term vision, and make sure the changes are sustainable.
• Look to change the language used in your organisation: investments in inventory record accuracy are a tool to drive sales. This will help to break the perception of stock counts being a boring, repetitive and (sometimes) pointless task.
• Support this with data & insights. Instead of a one-off measurement, should inventory record inaccuracy be used as a business KPI to ensure it remains on the agenda?
• Initially consider how to tackle the biggest contributors with the minimum investment. This targets the low hanging fruit and builds confidence in your strategy.
• A count may not always be the answer – the improvement to inventory record accuracy will be temporary unless you fix the root cause. A count is the solution if the root cause if unknown, or if it is cheaper than fixing the cause!
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Understandingyour root
causes
Validating your opportunity
Invest in accuracy, not just counting
What drives your inventory record inaccuracies?
Articulating why this is a problem worth fixing
How to successfully deliver a sustained benefit
3 Step Action PlanHow could you deliver these sales benefits in your own organisation?
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Thank You.
Todays Webinar
Launch the Report – Academic Team
Retailer Response – Tesco
Questions Use Tab
Send to [email protected]
39
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Appendices
APPENDICES
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Todays Webinar
Launch the Report – Academic Team
Retailer Response – Tesco
Questions
Use Tab
Send to [email protected]
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% of incorrect inventory records by retailer
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Direction of the stock record discrepancy by retailer
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Classification of SKUs by turnover and discrepancy contribution (Fashion)
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% of high discrepancy SKUs at the retailers
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Discrepancy contribution of different product categories (retailer c)
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Inventory record inaccuracies and hand adjustments
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Average percentage sales increase per product category (retailer c)