As retailers gear up for this upcoming Holiday sales period- the biggest question is: How will they address the perpetual challenge of inventory distortion? Inventory distortion is defined as: the cost of out-of-stock merchandise plus lost sales, combined with the losses resulting from overstocks that retailers must discount deeply in order to sell. The annual cost to retailers is estimated at $818 billion, and it’s predicted to increase by $50 billion each year . This distortion is comprised of both out of stock inventory and over stocked inventory. Some of the biggest challenges retailers will face when grappling with the inventory distortion problem are:
· - Lack of accurate, up to the minute insight to what’s on store shelves
· - Siloed sales channels between online and in store inventory
· - Trouble managing inventory between the supply chain, the warehouse, the back room, and the store
Intel hopes to use its technologies to work with retailers to address these challenges.. Drilling down on the “out of stock” side of the problem, the leading causes are due to “empty shelf” – 50% of the time, “Customer unable to find item on floor” – 25% of the time, “promotional price/availability” mismatch - 25% of the time. There are a few ways these problems can be addressed. A recent article quoted Dr. Bill Hardgrave of Auburn University who estimated that most retailers have an inventory accuracy of 50-60% at any given point in time. So, in order to run their businesses better, retailers must improve this accuracy rate.
First let’s focus on the empty shelf. This is when the current product is sold out. The brand may be paying for the shelf space, and yet the customer must either buy a substitute, or go to a different location to get the item. This accounts today for $100Bs in lost revenue for retailers and brands. Some possible solutions may be shelf scanning technologies that provide more regular updates on product status. Others suggest that RFID technologies on each sales item will be the solution. I think that multiple solutions will be employed for success as no single technology spans the variety of products and formats present in retail. For instance can camera technologies bring better visibility of what is on the shelf and how close an item is to stock out? With the deployment of RFID technologies many retailers are increasing the accuracy and real time stocking levels of all items. The key will be for retailers to not just deploy technologies but also reinvent business processes so that the workers can harness the power of this real time information and use it to act on it. The reality is this challenge is tangible and the possibility for innovation on this aspect of inventory distortion is palpable.
The second area of focus is the customer’s inability to find an item on the floor. We have all been there- wanted a specific size and color of an item and even though the sales person shows three items in stock and neither you nor the associate can find them. Are they in a dressing room? On hold? Or just put back in a wrong location? This is again where shelf scanning technologies and RFID technologies can play a part in the future. Way finding kiosks need to be able to update real time with location information and can interact with a consumer smart phone device to not only “tell” you where an item is on the floor, but interact via NFC tap to share a map of the store shelves on the device to guide you to the location within the store so you find the item quickly. Imagine the sales associate being armed with a portal on a mobile table or smartphone device that can show them real time inventory location!
The third area is also rife with opportunity. When product availability or price is miss-matched the customer may be expecting a coupon/discount that is offered but it is not available immediately. Consumers are then faced with the choice of either buying a substitute, or waiting for the right item to come into stock. Most retailers now offer “rain checks” but the process to manage these is cumbersome and certainly doesn’t leave the customer feeling delighted. It would be very powerful for retailers to have tools that can market what is in stock and shift a promotion to match current availability- therefore meeting the customer’s needs while also reducing inventory and eliminating a postponed fulfillment process. One reason for a system to shelf mismatch is due to theft. There are many technologies in deployment to harness the power of digital security surveillance video streams with the inventory information at the POS to highlight possible theft before it occurs. Many retailers are also moving to integrate their inventory visibility across their online and in store systems so that if the offer is not available in store they can ship it to the customer directly.
As Intel works with the industry to decrease the impact of inventory distortion, many new technologies will be implemented. What will be key in this transition is also the redesign of business processes so that the technology solutions “stick” and truly increase the return on investment to the retailer. Intel knows that such a large problem will not be tackled by any singular company, but will create opportunity for many ecosystem partners. Intel is willing to partner with the ecosystem to not only deploy new technologies, but also engage with retailers on business process design so that implementations capture the intended ROI. I would love to read an article in the future about how world class retailers operate on inventory distortion that is in the fractions of what we see today. It would be great to hear your thoughts and opinions on the topic, feel free to comment below!