The Negative Impacts of Poor Inventory Accuracy

Hey, everyone. Welcome to Herb's hot takes on Tyler Kern alongside Herb Billings VP of Technology strategy at Datascan. And today Herb has some scorching hot takes about the effects of poor inventory accuracy. Herb, welcome to show. How are you? I'm doing great today. How are you, Tom? I'm doing well, and I'm thrilled to be back for another episode of Herb's Hot Takes. And today, we're talking about the of poor inventory accuracy. Last time we talked about the positive sales impacts of counting more frequently, having a more accurate count Today, we're talking about what happens when your accuracy is poor. So Herb, let's kick things off just with the, you know, the most basic of questions. What are the effects of poor inventory accuracy for retailers? Well, inventory record accuracy is very important for both brick and mortar and omni channel retailers. To sorta take step back back in the day prior to omnichannel prior to it being big. If you went into a brick and mortar retailer and the item wasn't available, you may or may not ask if it's in the backroom, but you also might just see an alternative, you know, maybe this color work. What do you think? And then you put it on and you go. If you needed something and you really wanted it, you might ask the salesperson and they would have to call another store after they check the back room, of course. Probably check with another store, but they would call and make sure that they had it This was hiding the inaccuracy of their inventory records from you. It they would also ask that it be reserved and put aside for you. But the but the brick and mortar shopper just typically isn't terribly impacted by inaccurate records. Omnichannel changed that game. In many cases, retailers are at the very least exposing whether they have the item in the store or not. For the buy online pickup in store and the curbside ordering. And in some cases, Home Depot comes to mind you're actually displaying the number of units you have in your store. Home Depot probably has to do that because you might need four or five or ten not just the one or none kind of a question you would have at an apparel retailer. Right. You wouldn't want three of the same yellow shirt. Or most people who aren't app you know, Apple Steve Jobs with the black turtleneck, wouldn't want to buy three or four of those at the same time. Right. So, yes, it is definitely a much more important thing with omnichannel and then it became even more important with the pandemic. If you have poor inventory record accuracy, there are five main things I can think of that that this would affect. One of them is you will lose sales. Yeah. We talked in our previous episode about how increased inventory record accuracy boosts sales. Well, you're losing that as a result of poor inventory accuracy. The second one is that you could lose customers and lose their lifetime value. For many of our retailers, that's the most important thing. The fact that they might lose a forty dollar or fifty dollar sale is not as important as the fact that they might lose a five thousand to ten thousand dollar lifetime value for that customer. The third thing is, increased inventory costs through safety stock. Safety stock is there for a lot of reasons, but if you have to increase it, then your inventory costs are increasing. Another one that that is not often pointed out is wasted labor It takes time to go find these items, and when they're not there, they take a lot of steps to go make sure that they're not there. And then the fifth thing is employee morale. That was a big one. It was a big surprise for me in our interviewing our interviews with many of our clients. The employee morale goes down when they cannot find the items, when they can't satisfy this order. Everybody wants to be part of a winning team. The the the success is infectious. Everybody appreciates that. And when you feel like it's a failure because you can't find the item, that's a problem. That's a really good point. And I suppose it almost feels like it's one of the intangibles. Right? Just employee morale, but can be such a big thing, especially as we focus on the customer experience, and employee morale being high means that you're gonna have better customers, happier customers within the store. Right? And in the end, that could help create customers for life as opposed to losing them. Absolutely. That is a that is a big thing for retailers. You know, the whole shopping environment, the the experiential nature of it. One of the ways that the brick and mortar retailers are competing with Amazons of the world -- Mhmm. -- is to make sure that it is a pleasant and enjoyable experience that you want to repeat. And while we're on the customer experience, it's obviously such a huge topic these days. And I would imagine that not having something in stock that you say you have in stock is going to create a pretty negative customer experience. And like you mentioned, stores may not be worried about losing that that one fifty dollar sale, but they are worried about losing a customer who has you know, like you mentioned earlier, could have spent five thousand, ten thousand dollars, you know, in the lifetime of their relationship with that store. And that probably being, you know, maybe the biggest thing that that retailers have on their minds right now? It is. It's definitely a big concern. One of one of the things we noticed when retailers were starting to think about implementing their their omnichannel programs, their one of their big concerns was inventory record accuracy. Mhmm. I was a bit shocked to to hear that at first. We've always been well, I've been in this business for so very long. That it used to be more about just let's satisfy our auditing requirement once a year, take our counts, get out of here. But it has certainly grown into a a strategy to increase sales and to make the the experience for the clients, for the customers, much better. Knowing where your stock is at, accessing it quickly, all of this is is beneficial to the retailer because it benefits the customer. And you know that there's I I think people are trying new things these days like buy online pickup in store, and maybe a lot of people kind of have done that throughout the pandemic, but there's that saying you only get one chance at a first impression. Right? And if people's first impression of your buy online pickup in store process is that you didn't some of the items that you said you have, that's gonna create a negative perception that's gonna stay with you. Right? And that first impression of that experience of of using a new tool like buy online pickup in store for a certain retailer has been a negative one, and that's obviously not something that you want. That's true. I have had both positive and negative experiences with buy online pickup in store. Mhmm. I won't name the retailers on the negative experience, but I will say that it was it was very distasteful and I did change the the retailers because it was convenient to do so. On the good side, you know, making sure that the product is available, making sure that I have a good assortment to find it, the navigation of the web side of the app to to see what my alternatives are and to do comparisons. But then an easy, convenient, fast payment method and an easy convenient fast pickup method. With any kinds of, you know, any kind of customer service after the sale for that item that's necessary, possibly returns, anything else. All of that is very, very important to the omnichannel experience but it does start with product availability. If the product is not available, if the retailer doesn't know that it's available, It won't be on the website for sale. If the retailer thinks it's available, but it's not, then you run a big risk of of that customer experience you brought up. And and putting a bad taste in their mouth, and they won't come back. I think what you're describing is that holistic view of the customer journey. Right? And like you mentioned, inventory record accuracy is like the first step in that you have to have the item first. And that to me really stands out as an important aspect of this. When you look at if you're taking a holistic look at how that customer goes from a to z all the way through what you talked about, you know, the app experience, know, returns if necessary customer service, but it has to start somewhere and has to start with you having an accurate count. That's correct. Accuracy matter So I wanna go back to something you mentioned earlier, and that was safety stock. And I wanna talk a little bit about why it's important when it comes to these conversations. And I suppose How they fact How safety stock factors into buy online pickup in store and the the omni channel approach these days? Safety stock is used for many reasons. It it what it is is a way to limit the online shoppers from seeing items that possibly could be in somebody's physical shopping cart in the store. Oh, that's interesting. That's one way to to to look at it. So I might have the item, but it isn't purchased yet. And Nobody knows that it's in my cart. So you wouldn't want to also make that available to an online shopper who might put it in their shopping cart. Now, of course, once online that you put in your shopping cart, they know that. Mhmm. But but But nobody can run over and take it out of physical grocery cart and like go put it in a virtual or a digital one. Right? Right. So so safety stock used for that reason, but it's also used for another reason. It might increase if you have very low confidence in your accuracy. So if your records are not accurate. And by the way, if a retailer counts once or twice a year, they're the SKUs that are accurate, there's about thirty five percent of them that are accurate. Right. Not the majority. It's the minority. So if they don't have a lot of confidence in their accuracy, they will increase their safety stock to make darn sure they don't sell it to a customer online. It's a little different for brick and mortar because I see it or I don't. I'm not concerned with the inventory record accuracy at that point as shopper, but an online shopper definitely is. So maybe let me try to flush it out in in an example and you tell me if I'm understanding correctly. Let's say, you know, a hardware store twenty of something, but I need fifteen of them. And someone online needs ten of them. I've gone into the store and grabbed fifteen and the online person has put ten in their cart online. The safety stock helps make sure that the online person also has stock in reserve I suppose to meet their order as well as my fifteen that I bought in the store? The the safety stock is a level that it reflects the typical quantity that is being purchased -- Mhmm. -- as well as how often things are being purchased. So what is the likelihood of two shoppers, one online, one in in the brick and mortar store at the very same time needing most of what's available. That's that's the the purpose of safety stock. So sometimes it'll be a high number. Sometimes it'll be a low number. It definitely depends upon the item. But it is there to avoid the two primary things I know that it avoids are collisions between brick and mortar and online shoppers and the it reflects the level of confidence that the retailer has in their inventory records. That makes sense. So earlier you mentioned wasted labor, and that's another big thing that we wanna talk about a little bit as well because nobody likes wasted labor. People don't like busy work or or work that doesn't come to fruition or result in a happy ending it. You know, right? So tell me a little bit about wasted labor and how that works. So we in our interviews, retailers, one of the largest retailers in the US in the department store world, actually sends up to three people out to find an item for a store specific order. So if I made a buy online pickup in store order for, say, these slacks. Mhmm. They would send one person out. And if that person can't find them, then another person goes out. And if that person can't find them, third person goes out. Wow. I was shocked. The the amount of labor and effort that goes into it, these people would come back and describe what they saw. There's an inventory specialist who would go out and research along with them. A tremendous amount of of effort and time is spent trying to find these items to make sure that you fulfill them in the timeframe you said you would. The reason for that is that order has been purchased and paid for most likely. Mhmm. And so if they have to say no, somebody gets to call the client somebody gets to say, we don't have that, and we're going to refund your money, and we're very sorry. That is a very bad thing to have happen. So there's a tremendous amount of of labor involved in finding these items, especially when you have inaccurate inventory records. We heard from this retailer that they actually enjoyed the time after counting. So the moment that they used our system to count, for the next few weeks in in, you know, month, they actually enjoyed their omnichannel filament a lot more than they did the rest of the year. This was this we've always thought of counting as being, you know, a painful task. But it it was actually something they looked forward to because they knew that their that their daily lives would be better. As a result. That also speaks to the employee morale. This was a big driver in attempting to increase their inventory record accuracy so that their employees would have a higher success rate, a higher hit rate on finding these items to fulfill these orders. I mean, I don't wanna get too psychological or or pull back the curtain too much into my own personality, but I don't like disappointing people. And so if it was me that had to call someone to say, we don't have that thing and I had to do that more than, you know, like multiple times a week or a day or something like that, I would be absolutely crushed by that. Just personally. You know, that's just my personality, I think. Sorry to the viewer for getting, like, too much of a window into my own, like, soul. But that's that like, that that's how I would feel as an employee. Right? Well, typically that phone call involves a very unhappy person on the other end. Yes. When you when you order like sometimes it's for yourself and you're disappointed, but, okay, well, I'll just go get something else somewhere else. But very often, this is a gift for somebody. Yeah. And you might have been a little late. You might be trying to pick it up on your way to the party, have it gift Well, it's not available. I'm sorry. These types of situations are not pleasant for the caller or the call e. Yeah. Maybe I was trying to buy those slacks for Father's Day or something like that, and that doesn't work out. And now I'm like, well, now I'm in trouble. Right? You you're you're absolutely right about that. So earlier on in the conversation, we talked a lot about omnichannel and especially how the pandemic has kind of pushed us in more of an omnichannel direction. And suppose one of the things that I find most curious and interesting to talk about is how we view where we're going to be in a post pandemic world. How much will the shopping and and consumer habits have shifted in a permanent direction, especially when it as it relates to omnichannel and especially as it relates to to how people are going to go about making their retail purchases. And so that that's something that I'm I'm constantly thinking about. And wonder, do you think that omnichannel will continue to be the the way of the future even in a post pandemic landscape? I'm no expert in this space except on the purchasing side. Yeah. So as a as a customer of many retailers, I will I will predict this. Omnichannel was big before the pandemic. Mhmm. The pandemic forced people who swore they would never buy groceries online or would never buy anything line. Yeah. You want to touch feel and see it first. It forced those folks. My mother has had to buy online force them to try this and and just live with it. And everybody who's tried it will find the items that they're comfortable buying online and no longer need to touch feel and see in person. Those types of things will continue. Anything that saves us time will be, you know, the key in my opinion. Time and money are obviously very important to everybody, that's no big secret. But if it saves time, if I can make sure that I order online and have it ready for me to pick up. A really good example of that are contractors shopping at at the home centers at Home Depot and Lowe's. What they would have found out they're doing, they're big users of the buy online pickup in store because for them, time absolutely is money, for them to go shopping in that store to go pick the items that they need just completely takes away from their available time to build a a customer. So they will use the bio online pickup in store, and it's all available for them. They just go to the front desk, pay for it, show their ID, and take it out. People will do that as well whether they're contractors or not. Mhmm. If it's more convenient for me to go pick it up, if if the timing is is right. If it's better for me to have it shipped from anywhere to my house because I'm a planner and I've I've planned two weeks ahead. I don't have to worry about the timing. Or I don't have to worry about porch pirates or whatever the subject is that that causes me to do it. I now have more options at my disposal. I know that this seems like an unrelated topic, but when it comes to meetings. I feel the same thing has been forced upon me. Prior to the pandemic, I never thought of a Zoom meeting or a Microsoft Teams meeting. Never. It was either in person -- Right. -- or or it just didn't happen. Mhmm. There were conference calls but everybody tried to avoid those. Today, it's the first option for me. Yeah. Is a Zoom or Microsoft Teams meeting. The same thing goes in the retail space. I will have a whole lot more options available to me. It will be about saving time and picking the best one for me at that time. I expect that to go forward. I expect it to go forward with people who said they would never do it. That's really interesting. And this question might be a little out of left field and off script, but it it it just kind of dawned on me, I suppose. The people who swore they would never buy online and would only go into a store buy that item you know, buy the items that they wanted and then leave. We're never part of maybe the store's bigger digital ecosystem, so rewards programs, things like that, or maybe maybe they weren't. I wonder if more people doing buy online pickup in store, more people interacting with apps, brings people into the store's larger ecosystem, which allows the store to more data on certain things, on those customers. And so I wonder if having that that larger ecosystem digital and, you know, that that omnichannel approach, if that's not of net positive for for retailers. And so they want to get these experiences right. Well, one thing about omnichannel is it's real easy to capture digitally what you're doing. Yeah. So I can easily capture the path that you took through the website. I can easily capture what you chose not to keep in your cart. I can easily capture all of that information. It's harder to do in a brick and mortar store. Now we certainly are seeing studies and and technology that that enable that for the retailers, but it's it's faster easier cheaper online. Mhmm. Retailers love data. They absolutely love data for the marketing, for the promotions, for one to one marketing if they can get to that point. So, yes, the data associated with the brick and mortar experience, the loyalty membership, and the online experience. As long as you're identifying yourself, as that person, then yes, they love it. And I think it will help the retailers going forward. They will have to find a way to combat the easy alternative of buying online from somebody else. Mhmm. That's going to be a challenge that they will have to meet going forward. I I recently experienced a new phenomenon where I added something to my cart on a website. Got distracted, forgot about it. I think I closed out the website, and I got an email saying, hey, did you still wanna buy this? And I was like, oh, yeah, I did. Thank you for that reminder, which was just an interesting experience, I guess, and emblematic of that. Well, a secret that I hope I'm okay giving out. It's not any of our clients. At Etsy has a setting for sellers to send a coupon for somebody who has something in their cart that they didn't purchase. That's interesting. I like it. Sweet in the pot. Or a favorite. If you favorite something, a seller has the option of sending you a coupon for that I like that. I like that. That is that is particularly interesting. Man, alright. So we've talked a lot about out of stock condition. Are there any other conditions that's negatively impact the retailer? Yes. Out of stock is is a significant issue. For retailers. Mhmm. That is a well known, well discussed, well studied topic. I think on the omnichannel side, an unknown out of stock is one that, you know, is a very dangerous situation. We've also talked about that. That causes a canceled sale and possibly the rest of the order is also canceled even though that might be available in in stock. Mhmm. But the unknown out of I'm sorry. The unknown in stock is one of things that hasn't been discussed as much. The unknown out of stock in our clients, about fifteen percent of their skews are unknown out of stocks at the time that they count. Wow. But a significant number even though it's less are those unknown in stocks, those items that they don't think they have, but they actually do. Those are not available for digital sales. And our clients are averaging three percent of their SKUs in that condition. And that's one of the ones that's not as well studied because it's just not as in your face. Right. Right. Very, very interesting, just that that concept, I guess. And it just it turns it around a little bit. And we also talked a little bit more about that unknown in stock on the previous episode of of Herb Satakes as well. And so for maybe a more in-depth discussion, people can go and and listen to that episode as well. Well, Herb, as we wrap up this episode, just talking about the impacts and the effects of poor accuracy. Anything you want to say in conclusion, just the if you want to tie a bow on this so to and leave people with either a conclusion, a summary, or anything we haven't discussed yet? Well, it might sound familiar, but in the old days, counting was to was to satisfy the auditors to record your shrink for the year, get your financial documents in order for, you know, reporting to Wall Street or what have you. Today, we're finding that it makes the omnichannel experience better for the customer. It makes the omnichannel experience an x Accution better for the retailer. It increases sales and it is changing in nature from a task must be done to a task that is a a strategic move for the retailer. This will be far more important we go forward with the post pandemic world, everybody will expect the retailers to have what they say they have, an inventory see is the way to do that. The only way to get your inventory records accurate is to count them frequently. Very good stuff as always. Those are Herb's piping Hot takes today for this episode of the program with her Billings VP of Technology Strategy at DataScan. You also have a blog post on this. Right? People can go read the blog post if that's more their speed? Yes. We do. Data scan dot com slash blog. They're several there for inventory record accuracy among other items. Very good. Go check out herb's blog post on datascan dot com, and stay tuned. We're gonna be back soon with another a sort of Herb Sot takes. Next up, we're tackling the formulas and the the record accuracy formulas. We're gonna get a little bit mathy on you, and so I'm gonna have to put on my my math hat that I haven't put on in in quite a few years. And and we're gonna take a look at the formulas that you can use to determine inventory accuracy. So it's gonna be a fascinating episode. You don't wanna miss it. Stay tuned to datascan dot com for when that episode will be coming out But for this episode today for her billings, I'm Tyler Kern. We'll talk to you again soon.