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Out Of Stock? It Might Be Your Employee Payroll Not Your Supply Chain That's To Blame

2160 words - 9 pages

Attention, shoppers: Did you find everything you were looking for? Retail customers who answer "yes" to this question might very well represent the Holy Grail to retail operators who want to increase their sales with only a modest increase in costs or, in some cases, increase sales by merely reallocating staff within a store at no extra cost.

Impossible? Not according to a new study on retail store execution by Wharton operations and information management professors Marshall L. Fisher and Serguei Netessine, and Wharton doctoral student Jayanth Krishnan. Using proprietary data collected over 17 months from a large retail operation with more than 500 stores, the Wharton experts determined ...view middle of the document...

The implication of this finding on retail performance is quite dramatic."

"We were amazed to find how this retailer could increase sales by changing its staffing resources through adding more employees or simply reallocating existing staff," says Netessine. "In some stores, the sales leap would be $28 to $1 in employee costs, and that was really striking. We were blown away. It never occurred to most of the retailers that by moving employees around the stores, you could increase sales."

Fisher agrees. When the researchers analyzed the impact of increasing staff, increasing inventory and providing more training to employees, "The biggest surprise was the enormous measurable impact from increasing staffing," Fisher says. "And that's the one that's the easiest to act on."

The "Weak Link"

The study's findings could have a significant impact on how retailers view supply chain issues. As Netessine points out, most of the traditional retail supply chain concerns focus on planning and getting the product to the store. "You forecast demand and plan just-in-time deliveries to the store, but our paper points out that this is really not enough," he says. "Execution within the store is the key element. That's how the product gets to the customer. People will hopefully start thinking about execution issues and how to address them, and spend more time thinking about in-store processes. This is the weak link in the supply chain."

When it comes to customer satisfaction, says Fisher, "the new finding here is that it is often not enough to have [a product] in the store for many retailers. In many cases, a customer needs [the help of] a store associate to decide what product to buy."

As Netessine explains, "In a supply chain analysis, consumers' perception of availability is when there is inventory availability; if you have it in the store, they will think it is in the store." But as the study found, "employee knowledge about product brand and prices was the biggest driver of consumer perception of availability. Consumers think that it is not available to buy if there is no associate to explain the product, if there is no assistance when they need it. When we asked, 'Was there anything on your trip to the store that you couldn't find?' and then tried to get to the bottom of it, the biggest driver was employee knowledge and assistance. The actual presence of the product is actually the second driver."

The study, which is titled, "Retail Store Execution: An Empirical Study," is part of two long-term projects by Fisher, Netessine and Krishnan that examine store operating policies and out-of-stock issues in four major but unidentified retail operations to determine what drives retail success. Granted, before starting the "Retail Store Execution" study, the Wharton experts knew that customer satisfaction was a dominant driver in successful retail sales transactions. But they didn't know what elements of an individual store's operating policies drove...

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