The Role of Execution in Managing Product Availability

Several surveys show that a significant number of customers leave retail stores because they cannot find the products for which they are looking (e.g. Most research in operations management focuses on two factors to explain lack of product availability—poor assortment and poor inventory planning. Our research with several retailers during the last few years highlights a third factor, poor execution, or the failure to carry-out an operational plan. We find that even with the application of algorithms to select the appropriate stocking quantity and appropriate store assortment, the right product may be still unavailable to retail customers. For example, after auditing 50 products at ten different stores, management at a specialty retailer found that only 16% of the stockouts could be attributed to statistical stockouts (Ton, 2002). Instead, 24% of the stockouts were due to inventory record inaccuracy, discrepancies between the recorded and actual on-hand inventory quantity, and 60% were due to misplaced products, products that were physically present at the store but in locations where customers could not find them. Inventory record inaccuracy and misplaced products are two examples of poor store execution. These problems affect product availability in two ways. One, they lead to stockouts and hence compromise retailers' service levels. When the actual level of inventory for a particular product is lower than the planned level due to either inventory record inaccuracy or the misplacement of product, the actual service level will be lower than the planned service level. At Borders, a large retailer of entertainment products such as books, CDs and DVDs, lost sales due to misplaced products reduced the retailer's profits by 25% (Raman et al. 2001). Andersen Consulting (1996) estimates that sales lost due to products that are present in storage areas but not on the selling floor amount to $560-$960 million per year in the US supermarket industry.