A Robust Merchandising Supply Chain Requires Planogram Compliance

If your consumer goods supply chain starts at the retail store shelf, which is what many companies are striving toward, then it is very important that you understand what is occurring at the store shelf. But do you?

Not according to Mike Spindler, the CEO of ShelfSnap. I subscribe to ShelfSnap’s newsletter because I think they are an interesting little (yet growing) company. Here is an excerpt from the company’s most recent issue titled “The Elusive Shelf”:

A recent ShelfSnap study reviewing shelf level compliance covers 11 merchandising categories within the grocery store. In this study, we compared the store-specific planograms for the category to the actual shelf in the store. The actual store conditions were captured with digital pictures and translated into products, positions, facings and conditions called Snapograms. The planned assortment never actually makes it to the store shelf. On average only 70% of the products selected to be in the plan are actually on the shelf. Some of the shelves were reset only 2 weeks prior to the audit.

I had a few questions about this research, so I called Mike up. First of all, was this just a metric that measures compliance to the planogram or does it mix planogram compliance with shelf-level out-of-stock numbers? According to Mike, it is pure planogram compliance. The Snapogram, a picture taken of the shelf and then sent to their lab for analysis, may detect a facing void. For the purpose of this metric if that slot is open they assume that part of the category planogram is compliant and that this particular slot is out of stock.

Why does this matter? Merchandise planning solutions from vendors like JDA use fancy math to maximize the profitability of a category by creating planograms. A retailer is giving up profits if it can’t execute that plan. And a consumer goods company serving as a category captain risks losing its captaincy if it can’t maximize that retailer’s profits.

I also asked Mike about the sample. How big were the categories? They ranged from categories where the horizontal space allocated to the category was only 8 feet (e.g., bagged salads) up to categories that took up 400 horizontal feet (e.g., soda aisle). Nine of the studies they conducted were for consumer goods companies, two for retailers. When the studies were done for consumer goods companies, they typically looked at about 400 stores across 12 different retail chains. Five categories represented Direct Store Delivery product categories, the other six represented regular retail warehouse replenished products. So basically, this was a pretty fair sized sample.

So, here is my takeaway: In addition to measuring out-of-stock at the shelf, we also need to measure planogram compliance at the shelf level. We can’t get to more accurate store-level demand plans, and to a truly demand-driven consumer goods supply chain, without this additional metric.

(Editor’s Note: This topic is related to our upcoming seminar on “Beyond the Perfect Order Metric: Bringing Together Supply Chain, Category Management, and Mobile Technologies to Improve On-Shelf Availability.” Take a look at the great agenda and lineup of speakers we’ve put together. If you haven’t registered yet, secure your spot today so that you don’t miss out.)

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