The building of a brand is the creation of a promise and the setting of expectations. Maintaining the brand requires consistent delivery to the expectations that have been set. For people in the foodservice industry, most brand expectations are availability, quality and freshness. When grocers or foodservice establishments allow products to go out-of-stock or out-of-code, the brand will suffer because the desired products are unavailable or worse, if available, are still sold after quality has deteriorated.

Unfortunately, out-of-stocks and out-of-codes are unavoidable if inventory management occurs less than hourly. Weekly -even daily -inventory management cannot meet expectations such as availability, freshness and quality.

On the Hour
Category management, supply chain management and in-store inventory management, viewed collectively, have a very simple objective: the right product in the right quantity at the right time. That objective can only be achieved when inventories are managed in time increments of less than a week and even less than a day. Only hour-by-hour management properly aligns inventories to meet the objective. When the objective is met, two things happen:

1. Sales increase due to less frequent out-of-stocks.
2. Shrink decreases because products are made available closer to the time of sale.

Here’s an example: A grocery store’s bagged salad display was constantly out of one specific variety, which they called “Italian mix.” Management was not aware of the problem because it was not examining the transactional activity of specific types of bagged salads. There were always plenty of bags of iceberg lettuce with carrots remaining and, therefore, all appeared to be well.

This is how a category as a whole can mask a problem. While plenty of bagged salads were available, the store was losing countless sales opportunities because it was always out of the top seller. The loss was compounded by shrink because bags of iceberg lettuce with carrots had to be discarded. When management finally looked into the details of transactional activity, it realized that in a 20-minute increment, the eight bags of Italian mix the display case held would be gone. Once the problem was identified, the solution was two-fold:

1. Set up two rows of Italian Mix instead of one.
2. Monitor the display on a timelier basis for more frequent replenishing, not just every half day as before.

Management was amazed at the results of this simple re-merchandising of bagged salads. It greatly improved availability and decreased out-of-stocks. Those two simple changes -space re-allocation and closer monitoring -improved sales in bagged salads as a category by as much as 10 to 12 percent.

In a nutshell, current, hour-by-hour inventory control means:

1. Improved availability, leading to higher sales.
2. Faster inventory turns, leading to decreased inventory levels in dollars and days. The faster the inventory turns, the more likely products will sell before having to be marked down, which further improves profitability.

What’s Related?
One of the challenges of inventory management is the interrelationship between products. The ability to manage one item more carefully may have significant consequences for another.

Let’s say a store runs a promotion on a chunky-type soup during Super Bowl season. The ads encourage people to serve the soup in sourdough bread bowls. An increase in soup sales may have an enormous impact on sourdough bread sales. Conversely, if the store runs out of sourdough bread mid-day, it may also lose out on soup sales.

Making the Switch
What is the best way to prepare employees for new technology that manages inventory on an hourly basis? Because employees tend to be skeptical of anything that comes from management, expect resistance. The initial reaction will probably be that it’s going to mean more work, so the challenge is to demonstrate the opposite.

In fact, hourly inventories will be monitored by systems, not people. There will be no need to go running off to displays and refrigerators every few minutes. Any remaining tasks in the aisles may be automated using bar-code readers.

Once employees understand that it’s not going to mean more work, the next step is to explain and demonstrate to them how more-accurate inventory control will make their jobs more relevant and satisfying. After all, it is employees who bear the brunt when customers are disgruntled because products are not fresh or out of stock. Better inventory control means fewer customer complaints. Employees will appreciate finally being able to meet the store’s business and cultural objective: to take better care of customers.

The best way to introduce a new technology is to select “champions” from among employees. Listen to their views of the issues and problems and include them in the definitional process to create buy-in. When they recognize how the new systems will solve problems and make their jobs easier, they will become champions of the new technology and communicate its benefits to their peers.

One caveat to watch out for: Don’t select only the best and brightest as champions, because others believe they cannot live up to their standards. Pick people who are well respected by the peer group, but are not necessarily superstars. The best rule of thumb is to view all employees on a bell curve, and then select those in the middle. If these individuals can be given tools that will make their jobs easier and improve their decision-making, tremendous benefits will result.

Beyond Inventory Management
Inventory management has to be based on real-time information of real demand, not some projection of demand based on guesswork or last year’s sales. An integral part of inventory management, therefore, is demand forecasting, which considers not only historical information and what might be anticipated based on it, but what is actually occurring today, which may be completely different from any predictions based on last year. After all, the world is progressing toward real time -why shouldn’t inventories?

When just-in-time inventory management was introduced in the manufacturing industry about 25 years ago, it was perceived as an opportunity to have zero-inventory in stock and therefore reduce costs. Manufacturers envisioned using the very last widget just as the truck was pulling up in back to deliver more. While having no inventory on hand may be the best way to keep costs down in manufacturing, it’s not the right way to manage inventory in the food industry.

To prevent the out-of-stocks and out-of-codes that undermine a brand, foodservice operations must be more proactive at understanding what is selling and predicting what is going to sell. This necessitates paying close attention to factors beyond inventory, such as traffic patterns and the buying mentality of customers. FAD