How Does a Planogramming Service Help to Reduce Out-of-Stock?

The out-of-stock indicates the end of the stock of goods. And this is a serious issue that worries every retailer. It affects the on-shelf availability and leads to a loss of revenue. Everyday in-store stockout is a missed opportunity, in other words, lost sales. Customers, of course, can choose a substitute product when they don’t find the right product. However, if the situation repeats, the clients choose another store and the retailer loses loyal customers. So the losses will be not only financial but also will have reputational risks.

Causes of Stockouts

Out-Of-Stock can happen for many reasons. It could arise due to problems in the supply chain, sudden changes in demand, errors in inventory calculations, or lack of control. In addition, the causes may be human factors, technical problems, damage, shortage of goods, or theft.

The human factor can be the reason for mistakes in inventory management. Miscounting items can be all too easy in retail stores. Technical problems can arise when working with different tools for accounting and managing goods or due to differences between the data of different systems. Control systems in warehouses or distribution centers may malfunction or the error may be on the part of the personnel who enter data into the system.

A high turnover of goods can also cause stockouts. When a product has a constant demand, this was not taken into account before. The reason for out-of-stock may be seasonality or promotions, and the store is not ready to run out of stock. But even the most prepared companies can face unforeseen circumstances that lead to out-of-stock.

The most common out-of-stock errors are:

• errors in demand forecasts;

• incorrect data on the balance of goods;

• incorrect delivery schedule;

• untimely shelf replenishment;

• removal of goods from the assortment matrix;

• errors when placing an order;

• product defects or damages, or theft.

• supplier issues - problems with delivery or logistics.

Poor Forecasting

Inventory shortages are often caused by unexpected increases in demand. However, poor demand forecasting can also cause stockouts.

Most retailers would be able to report their hottest SKUs without reporting, but many make forecasting errors and inadvertently sell out their most popular items due to misprediction. If a retailer cannot effectively anticipate demand for a particular product, it is almost inevitable that customers will be frustrated by the product shortage.

Reporting Issues

Untimely and inaccurate reports can cause out-of-stock. Retailers can only make decisions based on real data. If analytics are not customized or sales reporting is not available, errors in product orders and demand forecasts are inevitable.

Incorrect Inventory Data

Incorrect counting during manual inventory management or incorrect placement of products after they are unloaded in the warehouse. Technical issues can also affect inventory levels, for example when a company has multiple distribution channels.

Late Deliveries

Out-of-stock can occur at any point in the supply chain, such as problems with the acquisition of raw materials, delays in production, and further destocking.

Logistics Issues

Natural disasters, epidemics, accidents, logistical errors, and other force majeure situations may prevent the delivery of products.

Can we avoid out-of-stock?

Any retailer recognizes the acceptable level of out-of-stock (in FMCG - no more than 5%) due to attempts to balance the interests of stores and manufacturers. The latter is always interested in creating the maximum stock in order to guarantee the constant availability of goods, while stores, on the contrary, save working capital and are not ready for the costs of pent-up demand.

What should we pay attention to?

ABC analysis allows us to track important indicators for the network: turnover, profit, number of checks, sales, and stock of goods.

Every modern retailer is aware of the importance to analyze and control all the processes in the retail chain. While analyzing sales, the retailer always has information about the real state of business processes. To analyze sales and track inventory, you can use one of the modules of the PlanoHero platform.

PlanoHero helps to customize all the processes of planogram creation and product placement and assortment control and getting analytics.

Using a single tool, the retailer gets the opportunity to:

• create a store floor plan and equipment;

• build planograms with different layout settings and product clustering;

• create your own layout rules and apply them in different stores to automatically create planograms.

• set tasks for the implementation of planograms and send them to managers in stores;

• control the implementation of planograms using photo reports;

• analyze layout, sales, and customer behavior.

Smart algorithms of the service report products that are running out of stock. So, the retailer learns about the products that are on planograms, the stock of which is enough for only one day. If necessary, information on balances can be filtered by individual stores and product categories.

If the service detects goods on the planograms that are not on the balance, then it reports product holes in the layout.

Another important indicator that the PlanoHero service warns about is "lost sales". The "Lost sales" report shows the number of days when the product was not sold or sales were minimal.

With the help of the PlanoHero tool, the retailer gets the opportunity to analyze the stock of goods.

The service analytics shows the percentage of surpluses and shortages of goods on the planogram for a certain period, the stock of goods, the cost of balances, and the average number of sales.

In addition, by working with planograms in PlanoHero, you can track changes in the assortment of goods. The service will notify you about new active products that have not yet been placed on planograms, as well as about inactive products that need to be removed.

Continuous inventory analysis and monitoring of sales performance will help reduce out-of-stock and increase sales. Here are a few more tips to prevent stockouts.

Optimize safety stock in case of out-of-stock

Provide the additional stock of goods when forecasting expected demand. A small number of extra products that the retailer will have on hand can be a lifesaver in the event of a sudden increase in demand.

Some retailers keep stock on hand for a week or two, based on experience or intuition.

Build relationships with suppliers

If a product is out of stock from one supplier, for example, when there is a high demand for a certain product, you can quickly reorder the product from a backup supplier and avoid out-of-stock.

A constant supply of inventory is essential to avoid stockouts. Therefore, you should calculate all options for the supply of goods in case of problems with your regular suppliers.

Let out-of-stock remain in the past, and the shelves are replenished on time and with the right products.

As retail is developing, those companies that can turn data into actionable insights to boost sales will be the winners.

When the product is available on the shelves when all sales figures and inventory are tracked, and when the retailer has reliable suppliers and partners, then problems are solved faster, and stockout is minimal.