Abstract for: Addressing Retail Out-of-Stock Issues Using System Dynamics

“Out of Stock” (OOS) has long been a plaguing problem in the consumer packaged goods (CPG) industry for both manufacturers and retailers. It refers to a situation in which an item is unavailable for sale as intended at a store. One study estimated that OOS items on average cost retailers 4 percent of their annual sales, and manufacturers $23 million for every $1 billion in sales. OOS could be caused by many factors, such as manufacturer production shortage, distribution center delay, consumer demand surge, and sub-optimal store operations, etc. There have been many previous attempts to model and fix OOS. To the authors’ knowledge, this is the first study to address the full production-distribution system using system dynamics (SD) and help all players understand the structure of the CPG distribution system that contributes to the system behavior that causes OOS, and interventions or improvements that can be made to the system to improve its performance related to OOS events. This paper will describe the OOS model we developed, the insights we gained, and the process we used to translate the initial SD model into a business application that can be employed on a wide range of product and retailer scenarios.