Calculating the costs
So, lost sales because of out-of-stocks are clearly a real issue. But just how big of a problem is it for the collective retail ecosystem? As it turns out, it’s a very expensive problem.
According to data from Progressive Grocer Magazine, there are 38,571 supermarkets in the United States that exceed $2M in annual sales, and they do about $682.7B in total revenue. Past studies have estimated that lost sales are generally equivalent to about 4% of revenue — in this case, that would be $27.3B. If we can prevent even a fourth of lost sales by decreasing out-of-stocks, that would amount to an extra $6.8B in revenue every year, and that’s just for grocery stores!
The key to recouping this revenue is the difference between generic demand and “true demand.” Tracking for true demand means thinking about demand at the individual consumer level — shifting from “filling orders” to “filling shelves.” This granular approach is different from typical supply chain management that stops tracking at the distribution center or other higher levels. Demand at the DC is just a proxy for true demand.