Best Buy Stores
During
November and December 2011 timeframe Best Buy (Figure 1) failed to deliver many
items to customers who ordered Christmas presents through the BestBuy Web site –
BestBuy.com. The company stated that
they were sorry for the inconvenience for its customers who made online orders
and notified each one directly.
Figure 1. Best Buy
This
was directly attributed to their failure to properly forecast sales on a wide variety
of hot, in-demand products that was termed as a “information mismatch”. When BestBuy chose to cancel the unfulfilled
orders instead of postponing deliveries the action was seen as the overselling
of products that they did not have on stock, in other words they encountered a stock
out. Due to the numerous alternative outlets
that could provide the products that BestBuy could not produce, the once
dedicated consumers switched to these other channels.
This
all occurred during Christmas which is the busiest season of the year. BestBuy did not intentionally plan this
consumer nightmare, but as far as their consumers were concerned, BestBuy was
not able to adapt to the heavy marketing conditions. Somehow their forecasting techniques failed to
project the proper volume of sales which in-turn, not only caused a tremendous
financial liability, but directly affected its consumer’s trust. This fiasco could have been avoided if
BestBuy would have used scenario planning in conjunction with their traditional
forecasting models.
Walmart
Another
example of forecasting failures is that of Walmart (Figure 2). This retailing giant has an impressive logistical
network which keeps 11,000 stores in 27 countries stocked at the 90% to 95% level. This is a very remarkable undertaking and one
would think that these levels are more than adequate, but not having shelves stocked
at 100% equates to the loss of $1.29 to $2.58 billion in potential sales. If products are not on the shelves, they cannot
be sold.
Figure 2. Walmart
Walmart
uses an automatic reorder scheme when products reach a certain level. These orders are routed to Walmart’s global
head office where delivery trucks are loaded and their deliveries are
determined by computer programs that selects the most efficient routes. Walmart is renowned for its extremely
efficient and technologically advanced logistical system the world over. Walmart insiders noted that the products were
available in each store’s storage area, but due to cost cutting efforts to limit
staff, these products never reached the shelfs on time.
The
lack of products on the shelves equates to bad customer experiences which
in-turn causes customers to stop shopping at these stores. The underlying problem with Walmart was not
their supply line – but the cost cutting process of keeping employee head
counts to a minimum. Proper inventory
management cannot rely upon automation alone, all aspects of the supply line
need to be sufficient, reorder points, delivery and stocking products on the
shelves. The customer experience is the
final variable in the selling equation, if customers encounter a bad situation,
they will shop elsewhere.
These
two case studies lead to the same conclusions – the misuse of logistical technologies
that lead to out of-stock situations and dissatisfied customers. Using the proper inventory management
software is paramount to keeping shelves stocked and customers happy. Demand forecasting based upon previous trends
can keep the shelves stocked with the proper amount of merchandise no matter
what the season buying patterns may be.
Reference
Tao, R. Out of Stock Problems.
(n.d) from Trade Gecko Retrieved from https://www.tradegecko.com/blog/out-of-stock-problems-and-solutions-walmart-nike-bestbuy-case-studies
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