Taking Stock of Inventory Automation
Properly integrated, the right warehouse and inventory management systems can help drive down out-of-stocks.
November 1, 2018
![Grocery shoppers Grocery shoppers](https://eu-images.contentstack.com/v3/assets/blt58a1f8f560a1ab0e/bltf51f405aa186d9b0/669edd9e551dc60432065156/grocery-illustration-shutterstock_1541098520.png?width=1280&auto=webp&quality=95&format=jpg&disable=upscale)
The average supermarket has tens of thousands of SKUs. But shoppers are most likely to remember the ones that aren’t there.
Out-of-stocks are among the most frustrating—and alienating—experiences a grocery customer can have. They’re surprisingly prevalent, averaging 8%, according to a recent study by the Food Marketing Institute. Not finding the product they want, in the size they want, is something that can sour a shopping trip—and, in the extreme, drive shoppers to another store.
Ensuring that items are on the shelf when shoppers want them, while keeping inventory manageable, is one of the most daunting challenges in grocery. It requires keeping track not only of what’s in the store but also what’s available up the supply chain. Proper forecasting requires accurate data about sales trends measured against a host of factors, including price, promotions, seasonality and much more.
“Supply chain managers are responsible for customer satisfaction and value, which includes both quantity and price, so they need to track sales, inventory and, ultimately, cost to serve,” says Patty McDonald, global solution marketing director for the retail software division of Dallas-based Symphony RetailAI.
Software applications in both stores and the facilities that supply them can help optimize product flow. The central apps are warehouse management systems (WMS) for warehouses and distribution centers, and inventory management systems (IMS) for stores.
These systems often are parts, or modules, of more comprehensive ones. Many enterprise resource planning systems have WMS modules, especially for warehouses owned by food processing companies. On the store level, inventory management often is a part of point-of-sale (POS) systems, allowing inventory to be tracked in near real time.
When it comes to warehouses and distribution centers that are owned by grocery chains—as opposed to food processors, wholesalers or third parties—they’re more likely to use an in-house WMS, says Phil Schaafsma, owner of D.L. Neu & Associates, an integration firm for warehouse automation.
“A lot of grocers’ WMS are homegrown software that they’re going to continue to use and update as needed to add automation,” Schaafsma says.
But whether in-house or purchased, stand-alone or module, WMS and IMS apps need connectivity. To optimize efficiency, warehouse and inventory management systems have to be able to communicate up and down the supply chain, with operations software, transportation software, ordering systems and more.
The ideal would be to have orders generated and fulfilled with as little human intervention as possible. That’s why connectivity between the WMS and the IMS is important.
“The easiest would be [for the WMS] to work with the POS system, which would delete inventory,” says Tom Becker, CEO of NorthStar Automation, a provider of WMS software mostly for distributors and third-party logistics companies. “And then from there, the system would know when to actually provide transfer or fulfillment scenario to say, ‘Hey, the next time you’re going to deliver product to this location, you’re getting near fulfillment levels based on what’s coming off the registers.’”
The more automated this process becomes, the easier it will be for grocers to keep their stores properly stocked on an ongoing basis.
“We strive to enable real-time data and better forecasts from the edge, where the sales transactions occur,” says Bill Kimler, inventory management and forecasting product manager for NCR Corp., Atlanta. “These in turn have a ripple effect upstream to optimize inventory and production levels for storage and manufacturing concerns. Consolidation of this data in our open platform provides an unfiltered exchange of information to enable collaboration and better decision-making throughout the supply chain, with the end goal of delighting consumers.”
To Infinity and Beyond?
But there’s a danger in putting too much trust in automated ordering, says Randy Fields, CEO of Salt Lake City-based Park City Group, which includes the ReposiTrak inventory management system. If it’s not done properly, with the right data and the right means of evaluating it, automating the inventory/ordering process can distort sales data and actually make out-of-stocks snowball.
The problem develops, Fields says, when an out-of-stock comes across as a loss of sales for a particular item, with no context. If a store should run out of, say, half-gallons of 2% milk, the only thing that many IMS or POS systems will register is a drop in sales for that item. When it comes time to reorder half-gallons of 2%, the lower sales will lead to a lower demand forecast and a lower order—even though there may well have been plenty of demand that just wasn’t being met.
Fields says this problem can become worse with automated replenishment. “What’s the algorithm for doing the replenishment? Should it be, ‘Sell one, buy one’?” he says. “What if you’re out of stock? Well, I can tell you what happens: You tend to keep driving your inventories to lower and lower levels, increasing your levels of out-of-stocks.” He once took another company’s algorithms for automatic replenishment and ran them to infinity, which found “almost all of those auto-replenishment systems ordered zero,” he says.
Of course, when it comes to the supply chain and inventory, groceries have other complications that don’t exist for clothing, electronics or other dry goods.