A Lean Fix to Stock-Outs

When was the last time you visited a retailer only to find they were out of the product you needed?  Stock-outs are too common in retailers of all sizes from private to big box.  In many cases, the product you need is there, but instead of being on the shelf, it is in the backroom still boxed from a recent shipment.  There is a series of events that the product must go through before being available on the selling floor:

1. The product is received into the backroom by truck shipment
2. The unloading crew opens the boxes and verifies accuracy of shipment against the bill of lading
3. The product is stored in an intermediate storage area in the backroom
4. An associate organizes and stages the product in the backroom
5. The product is finally moved to the selling floor by a merchandizer

This process can include up to five touches by human resources, an inefficient use of time, and poorly utilized back room storage space.

A Lean solution I have implemented at a few different retailers to solve this problem is called Door-to-Floor shipment receipt.  The goal is to receive shipment, unload the boxes, and stock to the floor in one fluid motion.  Though it sounds simple, there are challenges to implementing this streamlined process.

Truck Shipments: An important component of the lean initiative is being able to plan when the product will arrive, allowing appropriate staffing and planning to efficiently receive and place product to the selling floor.  Though a single truck can be dispatched to a single store, usually the truck includes product for multiple stores.  The trucks are often 3PL(Third Party Logistics), meaning  that they are not owned and controlled by the retailer, but are contracted.  These factors lead to varied and inconsistent arrival times.  Product will be left on the receiving dock or in the backroom. To help resolve this issue, review contracts and work with the contracted shipping company to understand delivery window expectations and SLAs (Service Level Agreements).  Strive to get dedicated delivery windows and setup to receive ASNs (Advanced Shipment Notices) where the shipment company alerts the Retailer of delivery schedules either electronically or manually.  These actions will result in the ability to appropriately plan for the shipment to arrive.

Unload and Processing: With notice and delivery windows, the retailer can be properly staffed to unload boxes.  Specific to the product, an efficient, product-specific unloading process can be designed and implemented.  A flex conveyor can be used to extend into the truck for box unloading and a staging area can be utilized for pallet unloading.   As boxes are opened, the product is sorted by selling floor location.  The sortation takes place into the proper vehicle to transport the product (shopping carts for apparel or pallet jacks for grocery or electronics).

Merchandising the Product: Moving the product to its correct location on the floor is called merchandising.   Merchandising standards vary by retail type.  In apparel, clothes need to be merchandised according to a visual guide that has been set at the corporate headquarters.   This is evidenced at every clothing store that changes product displays based on season or trends.   Some of the big box retailers have less merchandising and more standard locations.  Regardless of retail type, there is some level of merchandising due to brand management decisions to promote certain products.  In grocery, the inner aisle products usually remain the same while the end caps are always changing.   For merchandising to be done efficiently the merchandiser needs to be part of the unloading team.  They can provide the necessary guidance on the organization of the product as boxes are being opened.  They can direct the unloading team on the transportation and placement of product on the selling floor.  Finally, head-set communication between merchandisers on the floor and the unloading team lead provides visibility and preparation time to prepare the next areas that will be stocked.  In an over-stock situation, the merchandiser can communicate to the unloading team lead that ‘no more product is needed’ before product is brought out to the floor.

Results: There are many quantifiable and qualitative results from the improvement generated by this Lean process improvement:

• Sales Increase – The quicker the product gets to the selling floor, the better chance it has to be sold!
• Improved Customer Experience – Less stock-outs = happy customers and return customers.
• Improved quality – Product that spends time in the backroom has a greater chance to become damaged.  Also, multiple touches can damage the product.
• Reduced theft – The number one theft loss in retail is from employees.  A key place theft occurs is in the backroom. 
• Reduction in Inventory – Some big box retailers guard against stock outs by having mass quantities of product everywhere knowing they have inefficiencies getting product out to the floor.  With efficient product movement, less on-hand inventory is needed to fill demand.
• Space Utilization – If the backroom has fewer products, it can be better utilized for other uses like storage for various fixtures or associate break areas.   Some retailers can extend their selling space as the need for the backroom space is reduced.  New stores are designed with smaller backrooms.
• Reduced Labor Hours – All of those product touches resulted in many labor hours for unloaders and merchandisers.  A Door-to-Floor process can have labor hour savings up to 30% for these work groups.   Many retailers use the extra hours to either save cost or reinvest the labor into product recovery and customer service.
• Efficient Use of Labor – The skill set of the employee and job assignment is optimized.  Merchandisers, who are paid more, no longer open and sort through boxes.  These activities are performed by unloaders who have a lower hourly rate.  
• Employee Moral – Morale increases with the sense of teamwork and accomplishment.  In the past, individual associates would be sent to the backroom to work individually on opening and sorting boxes.  The productivity of this work was poor and employee dissatisfaction was high.