Establishing an efficient frontier for
shrinkage and on-shelf availability
Status update research project for the
ECR Europe Shrinkage group, sept 2014
Rob Broekmeulen and Karel van Donselaar
Contents
1
•
•
•
•
•
Research problem
Project steps
Added Value
Project status
Next steps
The problem
2
• Not enough insight in the trade-off between
shrinkage and on-shelf availability
• Majority of shrinkage at grocery retailers is caused
by perishable food due to waste
• Shoppers want choice and freshness in food
How can we improve
on-shelf availability
without increasing waste
(or reduce waste
with constant on-shelf availability)?
Project in 3 steps
3
• Step 1: Identify awareness and current practice
w.r.t . the trade-off between on-shelf availability and waste
• Step 2: Identify best practice
• Step 3: Quantify
- The retailers’ current performance
- The improvement potential when specific
changes are made (based on the best practices)
Methods:
Interviews, best practice literature, data analysis and
using an Excel-based benchmark tool
Added Value for the participating retailers
4
We provide each participating retailer an independent
view on their current operations and insight in the gap
between the current and the optimal situation:
• Which improvement opportunities have been made
already?
• Which further improvement opportunities exist?
• What are the most promising improvement
opportunities (quantification and prioritization of
the benefits)?
They receive an individual feedback based on the
analysis of detailed operational data for 9 representative
stores and three fresh product categories: meat, fruit
and vegetables and convenience products.
Added Value for all ECR-retailers
5
By providing a project report, a final presentation and the
benchmark tool to all ECR-members they can benchmark
themselves and identify and evaluate improvement
opportunities with minimal amount of time and data
needed.
In this way their senior management can be assisted, e.g. in:
1. Showing that waste is a choice,
2. Finding the optimal balance between on-shelf availability
(OSA) and waste, and
3. Identifying, quantifying and prioritizing improvement
projects for fresh product categories.
Project status (based on steps in the proposal)
6
• Step 1: Identify awareness and current practice
• All 3 retailers have been visited; first interviews have
taken place
• Step 2: To identify and evaluate best practices
• Interviews and best practice literature study are halfway
• Step 3: Quantify current performance and
improvement potential
• Most data received from 2 out of 3 retailers (matching
front and back office data via SKUid’s relatively good)
• OSA cannot be determined from transactional data since
match supply/sales/waste not perfect -> Additional data
on availability and replenishment logic needed
• Benchmark tool is ready for project use
Next steps
7
• Further interviews with retailers for current and best
practice
• Gather additional data and replenishment logic
• Analyse data
• Present preliminary results to individual retailers
• Write final report
• Present results to ECR-working group
An efficient frontier: examples
9
Base scenario:
• Shelf life 5 days
• Average demand 1 item/day
• Variance 1
• Daily ordering and delivery
• FIFO withdrawal
Waste [%]
Examples of ways to increase on-shelf
availability for fresh products
1) Changing the
minimal order quantity
1) Reduction of lead-time and/or
review period
3) Optimizing assortments
4) Exploiting demand substitution,
e.g. by differentiating OSA targets
5) Special replenishment logic
Requires awareness first!
10
Research proposal summary
11
Research title:
Establishing an efficient frontier for
shrinkage and on-shelf availability
Project duration:
9 months
What is this project about?
• In retail, there is a trade-off between
shrinkage (mainly waste in perishables) and
on-shelf availability: Actions to improve on
one may often negatively impact the other
Research partners: Technische Universiteit Eindhoven
Rob A.C.M. Broekmeulen (r.a.c.m.broekmeulen@tue.nl)
Karel H. van Donselaar (k.h.v.donselaar@tue.nl)
How much time will be needed from
you?
• Participation in project meetings (every 4-6
weeks)
What data will be required?
• A detailed data request will be developed at
the beginning of the project
• Interviews (1-2 h each) with selected
experts from your organisation, to be
identified at project start
– Likely to include representatives from
operations, supply chain, trading, finance,
loss prevention
• Likely data will include:
– Shrink/Waste/Markdown data (at lowest
available granularity level)
– Availability data (at lowest available
granularity level)
– Store and item attribute data (as
available, incl. sales volumes, forecast
data, etc.)
• The results will be helpful for retailers
seeking to strike the right balance between
reducing shrink and improving availability
What are the deliverables?
What are the expected benefits?
• Tool (Excel based)
• The project will produce tangible, actionable
outputs that retailers can use to implement
bottom line improvements through higher
sales and lower waste
• Project report (“White Paper”) detailing
insights and best practices that will help
you
• Help to validate or set the right targets for
shrinkage and on-shelf availability
• While this trade-off is intuitively well
understood, there is little ‘fact- and numbersbased’ research on the relationship and
what drives it
• The purpose of the project is to investigate
the trade-off using rigorous, quantitative
modelling with a focus on perishables waste
• Any results published or shared will observe
strictest confidentiality standards – no
retailer-specific data will be divulged
• Seminar/Final presentation delivering the
outputs to you and the Shrinkage & OSA
group
• Reduce shrinkage by addressing the right
drivers, without negative sales impact
• …and/or improve on-shelf availability,
without negative shrinkage impact