Why high stock levels are damaging your business

Why high stock levels are damaging your business
Why high stock levels are damaging your business

Excess stock means inefficiency so reduce levels of slow selling lines for a quick win.

By ReThink Productivity CEO Simon Hedaux.

Simon Hedaux

A whole industry of sophisticated algorithms and complex supply chains has been created to support the ‘just in time’ delivery concept that optimises stock holding and ensures products are there when the customer wants them. Insufficient stock availability is one of the worst retail sins and being without a customer’s key product can lead to abandonment of the whole basket. Convenience retailers know only too well that empty shelves of bread, milk and newspapers damage their business.

The Pareto principle says that 80 per cent of sales come from just 20 per cent of the lines and for many businesses the long tail of slow-selling lines can be even bigger, meaning that high stock levels on everything aren’t needed. The commercial impact of holding stock is clear to see on the business balance sheet, yet there are less visible effects that mean unintentionally high stock levels are damaging for your business.

Stock operations are most efficient when an item requires just one touch from your team and is taken from the delivery and put directly to shelf. Activity when an item is touched more than once means incremental workload and unnecessary time spent in-store. Excess stock creates double handling because:

  • A fill-up process is needed first to identify then fill up the stock from storage that will fit on the shelf.
  • Stock counts take longer as the back shop must be counted in addition to the shelves and there are more items to count.
  • Date-marked stock needs careful stock rotation and date checking. Stock holding that exceeds sell-through rates must be price reduced and potentially written off at a loss.

Where stock levels overwhelm the stockroom, it becomes impossible to manage stock efficiently. As a result, stock is stacked in front of other stock so counts become time consuming and inaccurate, and filling up requires many more interventions than the ideal single-touch model. Efficiency studies in stores such as this, usually show a combination of high stock levels, a high number of gaps on shelves and low team morale. Stores in this position need additional support to get back on top of their operation and break the vicious cycle of inaccurate counts and inappropriate deliveries. This scenario can also be seen in businesses where the buyers call the shots and flood stores with huge quantities of promotional stock and seasonal allocation.

Perhaps the most unfortunate impact of too-high stock levels is that the focus of the team tends to shift away from customers and wrestling the delivery into submission becomes the most important activity. In a recent study of a UK small supermarket/convenience retailer, it was observed that the team filled their time with stock counts, date checks and collecting single items from the warehouse. The result was that customers who wanted to be served had to wait until a team member noticed them and stopped what they were doing. We know as customers how uncomfortable we become when we feel we’re interrupting someone doing something ‘more important’. This isn’t the feeling we should be creating for our own customers. Too much stock prevents the store team from providing the warm welcome and engaging conversation that builds relationships with regular customers that are the core customer base.

The good news is that reducing stock levels of slow-selling lines creates a quick win for the business finances, a better working environment for the team and more time for customers. What’s stopping you?

 

About Simon Hedaux and Rethink Productivity

Simon Hedaux is founder and CEO of Rethink Productivity, a productivity partner that helps businesses drive efficiency, boost productivity and optimise budgets.

Simon started out on the shop floor and quickly progressed to manager, then straight to head office. He was productivity manager at UK retailer Boots, then became a workforce management consultant before founding Rethink Productivity. In just nine years it has become one of the leading productivity consultancies, helping some of the world’s biggest businesses get ahead. More information: www.rethinkproductivity.co.uk/