For the past few weeks we have been discussing the effect out-of-stock (OOS) and overstock have on the retail enterprise. These two occurrences are more than just a major source of frustration for retailers. According to IHL Group, a retail analyst firm, the combined costs of out-of-stock and overstock, which are caused by inventory distortion, adds up to a staggering $800 billion annually.
Unfortunately, Inventory distortion is somewhat unavoidable. It has been a part of every organization and supply chain for decades, causing sales and profits to be lost. As the number of SKUs, channels, systems and people increase, in both number and complexity, so will lost revenue opportunities.
The good thing is that most of the margin leakage that occurs can be identified and recovered in repeatable patterns. Analysis of those patterns can link profit leakage to discrepancies between what should be the case and what is the case in data, processes, and task performance.
There has always been some inherent inventory distortion built into retail. The distortion can occur for many reasons: inventory is miscounted or entered into the system incorrectly, merchandise can be stolen or scanned incorrectly at point of sale (POS), products can get damaged and are not removed from the inventory system properly. These are problems that can’t completely be eliminated.
The key is to identify trends and correct the underlying behaviors. Pattern-seeking technology can help. Patterns tell the story of what’s occurring within the retail enterprise. Retailers are then able to pinpoint the root causes of Inventory Distortion, and receive actionable tasks which eliminates profit leakage and lost revenue opportunities across the retail organization.
In a recent IDC Research “Analyst Connection” report, analyst Greg Girard says, “Retailers can reduce, if not eliminate, profit leakage by maintaining the integrity of the profit pipeline. Most of the value in profit leakage can be identified and recovered in repeatable patterns. Analysis of those patterns can link profit leakage to discrepancies between what should be the case and what is the case in data, processes, and task performance.”
Retailers should go after the most valuable of these discrepancies using time tested best practices, and corrective actions that are monitored by a task management system. Correcting profit leakage deserves priority within retail because it can deliver profit to the bottom line and increase revenue quickly.