A store finds that smiles are back on customers’ faces. Perhaps due to the ‘happy-clappy power of positive attitude seminar’ that the employees had attended, a department head postulates. “Sounds good!” concedes Paul White, the boss.
But Paul, whom you meet in ‘Isn’t it Obvious?’ by Eliyahu M. Goldratt (www.pqp.in), has something else on his mind. “How many shortages do you have? I mean, in the past month, how many SKUs have run out altogether?” he asks his deputy.
(For starters, a stock-keeping unit or SKU is a unique identifier for each distinct product and service that can be purchased, educates Wikipedia. “Usage of the SKU system is rooted in data management, enabling the company to systematically track their inventory or product availability, such as in warehouses and retail outlets.”)
“A lot less than usual. If I used to be missing things almost once an hour, I am missing something once, maybe twice a day now. You know what, boss,” she says excitedly. “Maybe that’s the reason for the good atmosphere. Finding what they want on our shelves makes for more satisfied customers.”
Could be, but how much has it influenced sales, Paul wonders? “Of course people buy more when they find what they’re looking for.”
He remembers what he had told Caroline, his wife, the previous evening, when discussing the phenomenon of increase in sales. “But traffic in the store hasn’t increased… Every single day the cash registers ring about twenty to thirty per cent more, but the number of customers entering the store is no different than before.”
So, it must be that the sales increase is not because more people enter the shop, but rather that, on average, each person who enters the shop buys more, Caroline argues. What could cause that? Fewer shortages?
No, fewer shortages can’t be the driving force behind the increased sales, Paul protests. “Two or three per cent I would buy. But twenty? Not a chance.” After all, the store had interchangeable items, he notes. “People come in wanting towels, they buy towels. If they don’t find their dream towels, they settle for different ones.”
How about sheets, Caroline challenges. “If I ever go to buy sheets, and the store is out of the sheets I like, not only will I not buy different sheets, I probably won’t go back to that store!”
She guides the discussion through hard numbers. “If you take the list of SKUs your shop is supposed to hold and you do an inventory check, how many items are you totally out of?”
Somewhere between a quarter and a third, Paul guesses. “About five or six hundred of the two thousand SKUs.” And those missing SKUs are the more popular ones!
“If you are missing roughly a quarter of the SKUs and the ones that you are missing are likely to be the better runners, how can you claim that you lose only two to three per cent sales due to shortages?” demands Caroline.
The morning after, therefore, has Paul booting up his system to check how many of his store’s SKUs had appeared on the inventory shortage list during January. “He then checked how these items sold during February. The income from these items came roughly to the increase in sales. Obviously, the fact that more these items were available in the store accounted for the large increase in sales,” Goldratt narrates.
“He then checked the shortage list for February, and saw that his store’s shortages had dropped from twenty-nine per cent to eleven per cent.”
Paul is perplexed, though. “How could he have fewer shortages than usual? Moreover, if the store was selling so much more, one would expect there to be more shortages, not fewer…”
Retail insights in a friendly format.
