Retailers suffer high 'stock outs,' GT Nexus survey shows

William B. Cassidy, Senior Editor | Sep 01, 2015 5:38PM EDT

U.S. retailers are currently “destocking” high levels of inventory, while dealing with “unprecedented levels” of out-of-stock inventory, both online and in stores, according to GT Nexus. In a consumer survey, the supply chain technology company found that 75 percent of shoppers experienced an “out-of-stock” moment at a store in the last 12 months. The record online was hardly better: 63 percent of consumers suffered an e-commerce “out-of-stock.”

“Companies are all trying to run lean inventories, but we’re still finding stock-out levels of 55 to 65 percent,” Greg Kefer, vice president of corporate marketing, said in an interview. Stock-outs cost sales, while overstocked inventories can cost retailers millions of dollars a day.

The GT Nexus and YouGov survey of 1,000 consumers show that many retailers are “wasting a bunch of money (on inventories), but they’re still failing customers (with stock-outs),” Kefer said.

Balancing inventory in an uncertain economic climate without doubt is a challenge. U.S. business inventories rose 3 percent year-over-year in June to $1.8 trillion, climbing 0.8 percent from May, the largest sequential increase since January 2013, the U.S. Census Bureau said. Census data show U.S. retail sales rose 1 percent in June, but inventories rose 4.1 percent.

The need to serve both in-store and online customers through omnichannel supply chains complicates inventory management, forcing retailers to rethink the amount of inventory they need to keep on hand at all times, where and how long they store it and how they ship it.

What’s needed, Kefer said, is real supply chain visibility, not just track-and-trace capabilities for shipments but broader visibility into the pipeline of goods and supply chain data potentially connecting hundreds or thousands of partners. “Quite frankly, most companies have underinvested in the back-end,” he said. “They’ve all gotten religion about sourcing and dealing with longer shipping lead times. But they don’t have the IT infrastructure to manage inventory in the way they need to. Based on the results of this survey, that’s costing them sales.”

In addition to 75 percent of in-store shoppers reporting a stock-out within the past year, 38 percent of the consumers surveyed said stock-outs happened often or very often, with 26 percent of online shoppers sharing that experience. More than half -- 55 percent -- of in-store shoppers who suffered a stock-out became “lost sales,” meaning they purchased the out-of-stock product elsewhere. “If you get someone to your store and what they want is unavailable, they’re going to go to Plan B,” Kefer said, not simply wait for the next delivery.

True supply-chain visibility will better help retailers and other companies make better on-the-spot inventory decisions and mitigate the effects of crises such as the West Coast port labor dispute, which helped push up inventory levels in late 2014 and early this year.

“Supply chains are hyper-exposed” to potential crises and events that could disrupt the flow of inventory, he said. “The port dispute is a classic example of a major thing that forces them to ratchet up inventory levels. One of the problems is companies don’t have the kind of systems that allows them to run an agile inventory. It’s all a gigantic hairball.”

GT Nexus, of course, is one of the companies offering shippers a solution. Kefer argues the need for such solutions is evident in the survey numbers and the earnings reports of major retailers struggling to balance inventories and improve their supply chains.

“Visibility” has been the Holy Grail of supply chain management for decades, but Kefer argues companies have used microscopes to focus in on their own operations when they really need telescopes that can give them a broad view. “What visibility is beginning to morph into is true end-to-end network-wide visibility,” he said. “Everybody has to be looking at the same thing at the same time, and you really can’t get that without Cloud.” A utility-style computing model (think LinkedIn versus Outlook contacts) is taking hold, he said. “Once companies get that level of visibility, they’re able to make smart decisions and begin to tackle multichannel problems.”