Retail on-shelf performance of advertised items: An assessment of supply chain effectiveness at the point of purchase

Journal of Business Logistics, 2001 by Taylor, John C, Fawcett, Stanley E

Customer expectations have increased dramatically over the past decade. Indeed, the constant rise in customer expectations is a primary driver of today's supply chain integration initiatives. At the retail level, heightened competition and demanding customers have led many traditional retailers to work to improve two key measures of supply chain effectiveness: on-shelf stock percentage and "total landed cost to the customer's trunk." The fact that channel power has migrated toward the end-consumer which often makes the retailer the channel master, has only increased the importance of understanding the fundamental dimensions of retail supply chain performance.

Retailers are placing more emphasis on on-shelf stock percentage as a bottom-line measure of service performance because of its potential effect on customer satisfaction.' Steams et al. found that stock-outs were the most frequently mentioned cause of frustration for dissatisfied customers.' Traditional fill rates remain important, but they do not capture the all important final customer experience, which occurs when the product is moved from the shelf, to the cart or rack, to the bag. A failure at this point makes all previous supply chain activities meaningless, no matter how flawlessly they have been performed. Quite simply, when customers visit a retail store with the intent to buy a specific product, they expect the product to be readily available. When they find an empty shelf, expectations are unmet, and a certain amount of dissatisfaction results) Moreover, they may decide to seek the product from a competitor. Not only is the current sale lost, but also, if the customer enjoys the purchase experience at the competing retailer, it is conceivable that a lifetime stream of revenue is diminished if not lost entirely. A simple service failure can prove quite costly for both the retailer and the entire supply chain. For example, one restaurant estimates the cost of a dissatisfied diner who chooses not to return loses approximately $25,000 in profit.4 Because the loss of a $10 sale can have enormous consequences, the "last hundred yards" of supply chain performance are absolutely critical.

The potential for dissatisfaction increases when the out-of-stock item is featured in a promotional flier. After all, fliers are designed to entice customers to visit the store. The importance of being well stocked on advertised items is not lost on retailers. According to a Kohl's executive, "in retailing, the biggest single customer-service complaint is not having the item. If Kohl's is promoting Dockers at 25 % off this week, you'd better believe the pants will be in stock. Otherwise, it's like inviting someone into your house and not offering him a seat."'

From the customer's perspective, the advertisement represents an implicit promise that the product will be available throughout the duration of the sale. In short, expectations are raised when items are highlighted in a flier. If these products are not on the shelf, expectations are disconfirmed, and the result is a dissatisfied and perhaps annoyed or angry customer (after all, the store's promise has been broken). When the missing item is the primary reason for the shopping trip, an even higher level of angst is likely to result. Moreover, it is not sufficient to have the product in the store, it must be on the shelf, where the customer expects to find it, since time and convenience are two very important priorities for consumers today. Few shoppers enjoy a "treasure hunt," traipsing through a store looking at end caps and other displays, trying to find a particular item. Even fewer are interested in tracking down a sales representative to ask if the product might be "in the back." Even if the product is on the premises, transaction costs are raised, and the shopping experience is diminished, when the product is not on the shelf.

Of course, a high on-shelf stock percentage is not without cost. In particular, inventory and transportation costs are incurred, and these present a serious tradeoff, since consumers are notorious for demanding low-cost products. As a rule, customers demonstrate little loyalty and are willing to shop around for a consistently lower price. Retailers must have a high level of logistical and supply chain excellence to achieve high on-shelf performance at an acceptable cost. Wal-Mart has become the world's largest retailer largely because of its reputation for consistently having product on the shelf at the lowest prices.6 To mitigate the conflict between the goals of high on-shelf performance and low cost, many retailers adopt postponement-based logistics systems that rely on close relationships with suppliers, advanced information systems, cross-docking, and dedicated transportation services.' These systems include continuous replenishment programs (CRP), efficient consumer response (ECR), and collaborative planning, forecasting, and replenishment (CPFAR).

The research reported here focuses on how well the recent logistical reengineering has helped three types of retailers-mass merchandisers, category killers, and grocery retailers-achieve high levels of on-shelf stock performance, specifically, for items highlighted in national advertising fliers. Our study evaluates the ability of retailers to live up to their implied promise of product availability and thereby meet a prerequisite to outstanding customer satisfaction.