A good inventory system is crucial for retailers, says retail historian Robert Spector. If they don’t have one, they won’t be able to forecast demand or replenish merchandise with any accuracy, and that will result in stockouts.
Daniel Corsten, vice director of the Kuehne-Institute for Logistics at the University of St. Gallen in Switzerland, says the average percentage of merchandise that’s out of stock in stores is 8.3 percent, which he adds, is high. He says retailers can improve their earnings per share by up to 5 percent by reducing the number of out-of-stocks. Sam Israelit, a partner with management consultancy Bain & Co., concurs: “Anything you can do to make sure you have the right product for the right price on the shelf when the customer wants it will improve retailers’ performance and growth prospects.”
Corsten and three operations experts from The Wharton School at the University of Pennsylvania found that customer satisfaction is partially driven by inventory availability—that is, when shoppers actually find exactly what they’re looking for on store shelves—which makes nailing inventory on the head a core competency for retailers. “Companies that invest in supply chain technology to reduce out of stocks are seeing significant benefits in the form of customer loyalty,” says Israelit.