Retail Margin Risk: 5 Critical Supply Chain Steps To Ensure Merchandise Plan Execution

Systematically Identifying and Eliminating Supply Chain Performance Related Issues Can Help Retailers Mitigate Events that Put Margin at Risk

By Richard Wilhjelm, VP, Sales & Business Development, Compliance Networks (reprinted with permission)

Every year, retailers spend hundreds of millions of dollars to create the perfect merchandising plan. Industry demographics are measured and focus groups created in an attempt to define the desired customer. Once the perfect customer and corresponding products are identified, sophisticated forecasting, planning and allocation systems are utilized to construct complex merchandise plans to achieve specific margin objectives.

Unfortunately the results, particularly during promotional or seasonal events, are often missed margin opportunities combined with damage to the retailer's valuable brand because of out-of-stocks (OOS) at the shelf. While in-store execution issues often lead to OOS, the culprit is just as often chain performance. In truth, the retailer's margin was in jeopardy from the beginning due to unforeseen but predictable supply chain risk factors.

The penalty for retailers is high, but is also segment dependent, because consumers react differently to an OOS depending on the product category. But in total, North American retailers lost some $89 billion in sales in 2011, according to research released last year by IHL Group, which specializes in the topic.

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