Market volatility, an often heard word in recent times, has impacted the industry’s outlook on stock management. Even in difficult times, should we consider meeting shopper needs to be more important than managing stock costs?

Insight from IGD’s recent hot topic report on ‘Driving Out Stock Costs’ certainly seems to suggest so. Out of those we surveyed, 96% of retailers and 91% of suppliers use ‘on-shelf availability’ / ‘service level’, respectively, as the main KPI to assess achievement of stock management goals.

Retailers’ three main priorities in managing stock are:

• Enhancing service (top priority) – essentially an operational excellence challenge- availability will maximise the customers’ experience
• Growing revenue by minimising out-of-stock, and managing stock cover days (second priority)
• Containing costs by managing stock holding costs, average stock value and a greater focus on ageing analysis of stocks (third priority)
   

Managing stock tightly is imperative

How are we responding to this?

Managing stock tightly in this increasingly difficult economic environment will be imperative. Forty-three per cent of our industry is reducing stock cover, while 15% are expecting to increase stocks owing to greater volatility in the market place. Other areas of focus include tighter stock management; change purchasing, reducing waste and improving forecasting.
 

The key is to build further efficiencies

Over a third of the retailers we surveyed are focusing on reducing stock, and working with suppliers to improve efficiencies. Their key concern has been to reduce stock holding where possible without adversely impacting availability and sales.

About a fifth of the retailers are looking to find and reduce waste in all areas of business. A further fifth are concentrating on improved stock management and improving cash availability. This includes more frequent reviews on stock reports and action if necessary.
 

Finding waste in all areas of business is extremely important, and has been since well before the economic downturn.     Commercial Manager, convenience retailer

There is more focus on a weekly basis, giving us a higher level of control.     Supply Chain Director, leading retailer

Our survey further highlights that a few retailers have changed purchasing patterns and are now purchasing on shorter terms. Furthermore, IGD has pinpointed some early trends, including a likely increase in buffer stocks owing to an unstable market.
 

Suppliers are making less to stock so we need to either be very accurate on forecast, or build stocks to overcome demand fluctuations.     Supply Chain Procurement Manager, leading retailer

Improve your forecast accuracy

In an unpredictable sales market, our ever increasing dependence on short-term measures to boost sales will make effective forecasting and demand planning more critical to success.
 

There is polarisation in buying patterns affecting forecasting ability, therefore, we need to focus even more on forecasting.     Customer Strategic Planning, leading supplier

Service level and availability are industry wide concerns, but increasing forecast accuracy and supply visibility are key priorities for suppliers.
 

What are the stock management priorities within your business?

Base: All respondents. Source: IGD Driving Out Stock Costs Survey, November 2008

Improve visibility of stock

More than two-thirds of the suppliers who responded have limited visibility of stocks at retailers’ distribution centres (70%) and at retailers’ stores (73.3%).

Improved visibility of stock in the network can help identify opportunities for stock reduction across the end to end supply chain. It can also assist suppliers in allocating stock more effectively when there is limited stock availability or an out of stock situation.

Technology-led investments to improve visibility and the agility of the FMCG supply chain are some of the areas leading suppliers are focusing on to drive down stock costs while improving on-shelf availability.
 

A balancing act

This complex balance of managing stock performance and service level, has been, and will continue to challenge the industry.

More information:

	Driving Out Stock Costs Find out how suppliers and retailers are addressing the issues raised in this article with IGD's new report, also available on IGD Supply Chain Analysis.
	Availability & Demand Planning 2009 conference A one-day event on 18th March to help retailers and suppliers beat the on-shelf availability challenge.

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Mala Morris is IGD's Senior Business Analyst - Supply Chain. Since joining IGD, Mala has led IGD’s Asian research with a specific focus on the Indian retail market. Mala has produced IGD’s India – Planning Your Approach (2007) and has presented at IGD’s Emerging Markets Seminar. Another key focus area for Mala is IGD’s research into the sustainability strategies of retailers. She is the lead author for IGD’s report, Sustainability: Planning for the Future and the new Driving Out Stock Costs report..