The Supply Side: Retailers struggle to combat out-of-stock problems

Empty shelves are an ongoing problem at Wal-Mart Stores and other retailers. It frustrates customers and results in negative headlines and social media posts. Wal-Mart and other retailers are making big investments of time and money to fix the problem, but supply chain analysts say solutions will not come easy.

Wal-Mart has acknowledged problems with on-shelf availability and back-room clutter, and management continues to work on these challenges which exist up and down the supply chain. Introducing products like SPARC, which allows for more back room access from third party merchandisers who work to ensure products get on the store shelf from the back room, is one of many strategies Wal-Mart is using to stem the problem.

While the back-room clutter is a problem, it’s just part of a bigger issue, according to supply chain experts. Dan Sanker, CEO of Fayetteville-based CaseStack, a third party logistics firm, said on-shelf availability issues have become worse in recent years. Unwinding the reality won’t happen fast or easy, he said.

“Since Wal-Mart has made a conscious effort to bring on more small suppliers and add back items to the stores after Project Impact (a program that reduced store items), the supply chain has become more complicated,” Sanker said.

CaseStack works with small to medium size suppliers conducting consolidation and warehousing services. He applauds Wal-Mart’s efforts to bring on more unique products because that’s something consumers have come to expect. Sanker said consumers want more product choices and retailers are clamoring to deliver. However, what consumers might not realize is that smaller suppliers may not have the wherewithal to carry sufficient inventory reserves and store them across the supply chain near all the stores where product is sold. 

Annibal Sodero, supply chain expert at the University of Arkansas, refers to this inventory as “safety stocks.” He said suppliers have the best efficiencies when they disperse adequate levels of inventory or safety stocks the closest to the consumer. In Wal-Mart’s case that would be in the distribution center network across the country. He said it is cheaper for suppliers to hold the product further upstream (away from the point of sale), but there is a trade-off in terms of service to customers. He said more smaller suppliers with niche and regional products do complicate Wal-Mart’s supply chain. 

Sanker said too many times he’s seen suppliers who rely on co-packers and outsourced manufacturing have to wait their turn for the product run which can be days or weeks. If the shelf is empty and there is no product to ship until the next batch is run, then it’s going to stay empty for a while. He said this perhaps could be eliminated if suppliers using consolidation services would carry adequate safety stock inventory.

Sodero said large suppliers don’t typically have this issue because they manufacture their own products in multiple locations. They also have the ability to store their products upstream and then feed the Wal-Mart distribution centers as orders are generated.

Sanker said his company facilitates those smaller suppliers with warehousing and tracking of sales in addition to the logistics involved in getting them to the correct distribution centers where orders are generated. But more suppliers lately have been looking to shave costs and some are opting out of those services. 

“When some of the shelves are empty it means there is no product in the pipeline to ship. But consumers often blame the retailer when in reality the suppliers are not carrying enough inventory to meet demand are also at fault,” Sanker said.

REPLENISHMENT CHALLENGES
Another part of the on-shelf issue Wal-Mart is working to improve deals with a new replenishment system referred to as Global Replenish System, or GRS. 

Wal-Mart’s team challenged with trouble-shooting replenishment and on-the-shelf issues recently spoke in Bentonville to suppliers. Debbie Hodges, vice president of supply chain services, told suppliers that her team is challenged with taking a look at the retailer’s entire network — looking for additional capability, hunting efficiencies.

One of the initiatives underway is known as “DC Pooling” which Wal-Mart said 36 suppliers are doing at this time. This is a result of Wal-Mart’s conversion to the new GRS software. Insiders said DC Pooling is not new, and is merely consolidating freight into full truck loads which is a cheaper and more efficient way to move freight.

Once a supplier can get on “DC Pooling,” Hodges said they will move more freight in full truck loads which means fewer touches and cost savings. Wal-Mart said suppliers and carriers will have five days of visibility (product tracking) for load information using GRS. This compares to one day on the Inforem system. 

Sanker said moving more freight in full truck loads makes sense for retailers because in CaseStack’s own tracking of the best less-than-truckload (LTL) carriers the arrive-by-date percentages are at best 85%, which is not enough for the 98% Wal-Mart expects from suppliers.

Experts said DC Pooling is not a complete solution because it’s only being used in general merchandise for freight collect orders generated through the retailer’s replenishment system.

Wal-Mart is using analytical algorithms which are run daily to determine the most efficient routes for products coming down the supply chain. Such analysis includes a close look at the retailer’s entire network, which includes:
• 42 Regional distribution centers;
• 42 Full-line grocery high velocity distribution centers;
• 7 Fashion distribution centers and a smaller footwear distribution facility in Fort Smith;
• 11 Import distribution centers;
• 28 Specialty distribution centers, e-commerce, optical, pharmacy, returns, tires, etc.; and
• 10 Center-Park distribution centers for consolidating freight.

The average one-way travel distance between the stores and the distribution center is 134 miles, according to MWPWL International.

SMALLER STORE ISSUES
Sodero said as Wal-Mart continues to add more smaller stores, the square footage in the back room is limited. This makes storing product further up the supply chain a necessity. He said the on-shelf issues are problematic for all retailers and especially those who have built a reputation as a one-stop shop.

Wal-Mart has been slow to roll out GRS and fully replace Inforem which was created by IBM and last updated in 2007. The two systems are opposites and incompatible. Inforum uses an upward forecast modeling system, while GRS uses a downward forecasting model.

Jami Dennis, a private consultant to small and medium size suppliers, said replenishment is one area where she finds many suppliers have concerns. She said the primary issue is that suppliers often don’t understand their ownership of the process.

“Many do not know who their replenishment manager is and/or have limited communications with them. The don’t know that they should be watching store-specific activity and making recommendations. We advise suppliers to ask for a minimum of a quarterly call and in some cases (if there are issues) weekly strategy calls,” Dennis has told The City Wire.

Besides a supplier getting their foot in the door, understanding the complexities of the replenishment process is one of the biggest hurdles many will face, according to Dennis.

“A sales team may sell an item into Wal-Mart but the replenishment team has to sell it for the remainder of that item’s life span. Suppliers could be missing out on hundreds of thousands to even millions of dollars in missed shipments yearly because of a simple lack of knowledge about the different functions and tools that are available to better promote and manage items,” Dennis said.