In January, 2008, SupplyChainDigest™ reported that out-of-stocks cost retailers $93 billion per annum in the US alone.

Rather than the situation improving, today’s lower inventories, compounded by hi-low promotions and restrictive labor costs, continue to cause manufacturers to lose revenues and market-share from out-of-stocks.

Greg Buzek, President, IHL Group, has written extensively on this subject and reported in April 2008:

"Consumers loathe out-of-stocks: in survey after survey, consumers say that not being able to purchase a product that a store is expected to have, or has been promoted in advertisements, is second only to standing in long lines on their list of shopping frustrations."

Of Greg’s many observations, the above demonstrates a direct relationship between out-of-stocks and brand erosion.

It’s therefore a mystery to me why such an obvious opportunity to reduce such a massive revenue leakage doesn’t get the full attention of the affected parties.

I have suspected for some time, that the underlying reason is that manufacturers have become too reliant on 3rd party service organizations and their stuck-in-the-past mentality. Specifically, it appears to me that the root cause for this situation coming about is that US 3rd party providers have not kept pace with their UK and Australian counterparts who have adopted profit-justified technology solutions that dramatically reduce and manage all aspects of retail performance (including out-of-stocks).

Having been involved in such implementations in the UK and Australia, I am aware of numerous sophisticated and effective systems for addressing merchandising (such as Creative Field Marketing).

As an example, a relatively simple and common approach that is used overseas to remedy out-of-stocks, is to wirelessly distribute POS scan data, (obtained from chains on underperforming products by store), to inexpensive handheld computers carried by field-marketing staff. Field staff then report in real-time with rich, actionable responses (including photos of displays) and if possible rectify the issues on the spot, in time, and in the store.

Manufacturers receive instant gorgeous real-time dashboard reports that enable them to truly come to grips with out-of-stocks.

This is a "rifle-approach" rather than the customary "scattergun" alternative that US 3rd Party service organizations seem to prefer. Their reasons for doing so lies in their need to leverage their scheduled visits by representing many manufacturers at each visit.

But if a store is visited monthly on day 30, then what happens in the interim? The tag may not be there or the product could be missing from the shelf for many days before it’s noticed. And more to the point, how can they ensure that out-of-stocks are accurately reported on and acted on when out-of-stock products are often buried amongst hundreds of products that need to be audited on the scheduled day of the store visit.

Manufacturers are then back to where they started, with reams of endless reports justifying 3rd party expenses but not solving their all important out-of-stock problems.

Fortunately, some smaller, more nimble, and innovative US 3rd party merchandizing companies and brokerage firms are now coming to grips with "smarter ways" of addressing out-of-stocks. However, many manufacturers, who tend to rely on the industry giants of merchandising, still tend to lose out due to their outmoded merchandising practices.

These giants in the 3rd party merchandising industry appear to be quite happy with the status-quo, which is not good news for manufacturers (especially if they are small to medium and don’t gain their full attention). A likely outcome is that out of pure frustration, and having thrown more money than they can justify to address their out of stock problems, manufacturers will be forced to throw this critical issue into the "too-hard" basket.