Getting inventory right is a challenge that every retailer faces. New retail technology for inventory management is often seen as the way to solve this conundrum, but what happens when retailers get it wrong?
That may be the new problem Whole Foods Market (WFM) is facing. Reports of food shortages in stores leading to empty shelves and angry customers have been bubbling up, and a recent article from Business Insider (BI) claims the grocer's newly implemented inventory management system called order-to-shelf (OTS) is to blame.
The order-to-shelf project was led by Bart Beilman, global V.P., supply chain & retail operations, and was supposed to transform inventory levels in the back room, essentially clearing them out of inventory that's not necessary. The OTS project involved some products being moved directly from the loading dock to store shelves. It was meant to help WFM cut costs, better manage inventory, and reduce waste.
Last February RIS reported that David Lannon, Executive Vice-President of Operations, said in the stores with order-to-shelf, WFM is looking at some very empty back room spaces.
"We'll see increased efficiencies gained as we go to automatic replenishment, which we're pioneering at some of our stores right now," CEO John P. Mackey said in February.
But BI reports the inventory management system's strict procedures are leading to storewide stocking issues, according to several employees interviewed. Angry responses from customers are crushing morale, they say.
"At my store, we are constantly running out of products in every department, including mine," an assistant department manager of an Illinois Whole Foods told BI. "Regional and upper store management know about this. We all know we are losing sales and pissing off customers. It's not that we don't care — we do. But our hands are tied."
In May RIS reported WFM expects to achieve 2020 targets of more than $18 billion revenue growth and comparable store sales growth of greater than 2% through lower margins paid for by cost savings expected from its category management process and purchasing restructuring.
"We're moving basically from a federated system of purchasing to a unified system of purchasing and we expect to see a lot of cost sayings there," said CFO Glenda Jane Flanagan in May. "We already have some indications of that and we know that that's a very realistic expectation. And then you layer in the cost savings on top of that which will all flow directly to the bottom-line and that's how we get to the high-level targets that we have issued for 2020."
According to BI, multiple WFM employees said the reduced back stock means that any unexpected increase in shopper demand or a product-shipment delay can result in out-of-stock items across every department.
"If a truck breaks down and you don't get a delivery, then you have empty shelves," an assistant manager of a Chicago-area Whole Foods told BI.
According to BI, Whole Foods gets stores to comply with OTS by instructing managers to regularly walk through store aisles and storage rooms with checklists to make sure every item is in its right place and there is no excess stock. If anything is amiss, or if there is too much inventory in storage, the manager in charge of that area of the store is written up. After three write-ups, they can lose their job.
Multiple employees said these tests had "crushed" morale in stores because workers are terrified of getting "walked" and missing some small detail.
It seems that, while WFM did have a need to improve its inventory, the new system has taken it to the opposite extreme. Click here for the full article from BI.