P&G ANALYSIS EXPOSES KNOWLEDGE GAPS IN STOCKOUTS 2004-04-26 (1)

LIZ PARKS

CINCINNATI -- A recently completed analysis by Procter & Gamble for all its business categories and worldwide brands shows retailers lose a sale 41% of the time that they're out of stock on a P&G item. P&G, on average, loses the sale 29% of the time.

Even more alarming, the research showed in-stock performance during key merchandising events is twice as bad -- often running in excess of 25%. Such promotions comprise about half of the business in the industry.

"We're not happy about this, and consumers certainly aren't," said Keith Harrison, P&G's global product supply officer. "In our opinion, this provides a very compelling business case for why the supply system needs a consumer focus."

Speaking at a recent conference, sponsored by AMR Research, Boston, Harrison told attendees that stockouts are "an expensive loss of consumption." Based on what manufactures and retailers invest in marketing dollars to attract consumers, he estimated that lost sales due to out-of-stocks represent an estimated loss of $1 billion globally.

Harrison added that P&G's research shows consumers today "will typically deal with no more than two or three consecutive out-of-stocks on a product that they are loyal to before they change their habits and don't shop that store for the category in question any longer, or permanently trade off for another brand.

"So in the long run, everyone loses if we don't rethink our approach to the supply system." The solution, according to Harrison, lies in what P&G defines as a "consumer-driven supply network strategy."

He said the clear objective "is focusing everything we do on serving and winning at the shelf with the shopper. The current state of how we should be judging the effectiveness of supply chain performance [at the shelf] is less than optimal with out-of-stocks running routinely higher than 10% in the industry."

AMR's Scott Langdoc, vice president of research on the retail industry, agreed, saying the supply chain for a company like P&G today extends all the way to the store shelf.

"The question is who's going to be responsible for indicating the status of the product on there?" he asked.