H-E-B DISCLOSES OUT-OF-STOCK REDUCTIONS

Michael Garry

SAN ANTONIO -- Following a one-year period of collecting scan data for 1,439 stockkeeping units, H.E. Butt Grocery Co. here was able to reduce its out-of-stock levels for those products by applying a new set of in-store disciplines.

H-E-B disclosed the findings of this effort, conducted last year with Procter & Gamble and Data Ventures, at a closing general session at the Retail Systems 2003 Conference & Exposition held at Chicago's McCormick Place earlier this month. It was H-E-B's first public comment on the project, which Data Ventures, Charlotte, N.C., had announced earlier this year.

Bernard D. Anderson, H-E-B's director of strategic alliance and initiatives, participated in the session held on June 12, along with Gary Swenson, senior operations manager, P&G, and J.P. Brackman, global retail presence manager, P&G.

According to Anderson, in a two-month, 14-store test in which it applied an eight-step best practices approach to out-of-stocks, H-E-B reduced sales lost from out-of-stocks on its top 24 items by 22.8% and cut lost sales for the 1,439 overall test SKUs by 8.3%. The 1,439 test SKUs consisted of 439 "large cube" P&G items, including diapers, laundry detergent and bath tissue, and its top 1,000 warehouse-sourced items.

When the test was expanded to all of its stores in Corpus Christi, Texas, out-of-stock rates declined by 25% for the 1,439 items, and by 75% for the 439 P&G items, over an eight-week period.

In the initial assessment of its out-of-stock problem, H-E-B collected daily scan data by item for the 1,439 SKUs for 262 stores for a year. The chain then sent the data -- 62 million pieces of information collected on nine CD-ROMs -- to Data Ventures for analysis.

With all of that data, "we thought for sure we'd bring [Data Ventures] to their knees," said Anderson. "But four weeks later, right on time, they gave us a report." H-E-B received subsequent reports every four weeks for six months.

The top-line results of its year-long look at out-of-stocks revealed an out-of-stock rate of 6.8% for the 1,439 items, and a rate of 7.3% for the top 500 SKUs, Anderson said. "It was a shock to everybody that 73% of the top 500 SKUs experienced an out-of-stock at some point in time," he said. Overall, through the course of the year, H-E-B identified 6.2 million "holes in the shelf," equating to "6.2 million opportunities to dissatisfy customers," Anderson observed.

Other findings included: among the top 10 out-of-stock SKUs were five baby formula products; among the top 100 out-of-stocks, 53 were private-label products, 22 of them high-margin dairy items; out-of-stock items were the same in most stores; the warehouse was not the cause of out-of-stocks; and stores in the same area had widely divergent out-of-stock rates.

Having determined the scope of the problem, H-E-B assembled a "blue-ribbon panel" of managers from its lowest out-of-stock stores to come up with best-practice procedures for addressing the issue. The chain identified eight procedures, or "critical touch points," with which it was subsequently able to achieve the reported drops in out-of-stocks.

Anderson shared five of the procedures with the Retail Systems audience, in order of importance:

An emphasis on training of order writers who use handheld systems, addressing what to do when the regular order writer is not available. "We found that if we had one bad order in a week, it ruined the out-of-stock percentage for the whole period," said Anderson.

Assigning individuals to oversee the stocking of specific aisles. This person addresses "holes on the shelf" and "straightens out over-stock," he said.

Monday morning out-of-stock checks. Store employees write down the order codes of all out-of-stock SKUs and then on Friday or Saturday order more of those SKUs. "You do that every week until there are no holes on the shelf Monday morning," he said.

Grocery manager involvement. The grocery department manager walks the aisles with the order writer, asking about out-of-stocks and reminding the writer about upcoming events.

Dairy/frozen managers are required to follow standard operating procedures.