It has been a while since I have added anything to this blog. So here is a observation I would like to put forward.
A while back Wal-Mart was taking heat for its performance and same store sales. A lot of focus was put on the opening of new stores. There is no doubt that the rate of new store openings had an impact. However, there was another area that could have had impact and seemed to receive little attention. Inventory Deload and Project Remix Initiatives were efforts to reduce the total cost of inventory. Did these efforts impact same store sales during this time period?
If you surf you Internet then you can find articles such as, July 21, 2006 “Spectrum Brands Latest to Blame Retailer Inventory Cutbacks on Sales Shortfall”. These articles seem to suggest that suppliers were selling fewer products to Wal-Mart during this time period and that it was related to Wal-Mart tighten up on inventory.
Reducing out-of-stock and maintaining lean inventory are conflicting constraints on any supply chain. How much inventory must be maintained in the system at any given time for the customer to get the products they want when they want them.
From “There’s Power in POS Data” Supply Chain Leader / October 2007
Wal-Mart had a 98 percent fill rate. The shelf fill rates were measured each Friday, revealing a weekly average across all locations. They pointed out, “if stock levels fall below 98.5 percent on Saturdays or Sundays, proportionally more sales are lost”.
The article does a good job showing how the true out-of-stock could be masked by using averages that do not take into account volume of sales related to a daily out-of-stock rate.
Another factor for a supplier is the turn over rate in a induvidual store. A product may be sold to Wal-Mart by a manufacturer. However, what the manufacture may really have is A,B,and C stores. There may be cases where 80 of sales come from 20 percent of the stores serviced by a single distrubution center. If a 10% cut is made across the board the impact to the 20 percent of the stores accounting for 80% of sales will be significant. While at the same time the impact to the 80 percent of stores accounting for 20 percent of sales will have a small impact.
Another interesting factor that can also impact out-of-stock and inventory levels is that a given distribution center services a number of stores. Some products may have different turnover rates in different stores. For a store with a higher turnover for a given product a warehouse scratch can have a higher impact. The solution is generally to maintain more inventories on the self or back room. However, if inventory levels are to be reduced then inventory on the self or in the backroom may be reduced as a result. If the distribution center is processing orders then the scratch for the high-turnover store will result in greater lost sales then in the stores with lower turnover. If orders are processed for a given store in a set order then there is no means to force the warehouse scratches to the stores with the lowest turnover over. In fact it is possible for patterns to develop where some stores can have a higher probability of getting a warehouse scratch based on the order the warehouse processes that stores order.
Were these factors in Wal-Mart performance? Since I am not related to Wal-Mart I can only speculate. In my opinion there is enough circumstantial evidence to suggest that it cannot be ruled out as a factor. If it was a factor then it is something that other retailers should take into consideration when they look into cutting inventory levels.
