We’ve all worked for a company (or perhaps several companies) in which we were exposed to policies that just didn’t seem to make sense. Typically starting with the best of intentions, many policies designed to deliver efficiencies, streamline workload, or provide ROI can fall victim to negative downstream behaviors once rolled out.

The causes for this are numerous: misaligned incentives, overly rigid guidelines, or perceived no-win situations. For the most part, retail employees want to do a first-rate job and be recognized (as well as properly compensated) for their work. In the first of this series, we’ll investigate instances in which the best-intentioned policies went off the rails shortly after they were rolled out to stores.

Inventory accuracy is an incredibly important piece of any retail organization’s success and profitability. From ensuring the right inventory is in the right place, to on-shelf and eCommerce availability, store associates and leadership are often the first line of defense for the customer’s shopping experience.

Inventory counting can also take place in several ways, the most of common of which are annual cycle counts, on-demand scanning, and shrinkage / loss measurements with each having their place in the calendar and inventory lifecycle. To this end, many retailers heavily weigh inventory metrics for store leadership reviews and bonuses. While well intentioned, incentives related to inventory must be managed in a way that the expectation is clear: the right inventory in the right place, year round, protected and monitored such that the store can effectively deliver on customer expectations.

Let’s explore an example of how a well-intentioned policy related to inventory accuracy drove behaviors that compromised customer service and led to higher inventory costs. The issue was discovered when investigating in-stock issues that the stores were experiencing.

The goal of this well-intentioned policy makes sense:

  • Provide an incentive to store leadership tied to inventory accuracy 
  • Utilize metrics that are clear and easy to measure, track and compare 
  • Drive in-stocks and provide the best possible inventory position for customers

While this retailer was experiencing consecutive years of positive comparable store sales growth, there was an unseen factor gnawing away at both top and bottom line numbers. Store managers knew that inventory changes daily – often even hourly – based on sales, loss and theft, and that being incentivized on the narrow year-end metric alone left open a large possibility to drive their own bonus.

Since inventory adjustments throughout the year were not measured against year-end numbers, in the eyes of store managers, there was no overly compelling reason to actively prevent theft, replenish the floor or maximize sales during the year to drive the inventory accuracy metric – particularly in light of other store priorities such as customer service and corporate-driven mandates. Instead, the focus was on making sure that the year-end numbers matched the annual cycle count expectations, which only required intense focus in the weeks leading up to the count to achieve.

This led store leadership to spend inordinate amounts of time and labor hours in on-demand scanning and inventory adjustments in the weeks leading up to an inventory to achieve a better number (and therefore bonus), but neglecting inventory accuracy and replenishment throughout the rest of the year.

While this example may seem extreme, since the teams were also measured on other less-controllable elements such as sales performance and turnover; however, this particular element felt like it was something the store teams could completely regulate and take to the bank. This mindset absorbed a disproportionate amount of their own and their team’s time and energy in the weeks leading up to a cycle count.

Further, since this retailer utilized a low-cost labor model, the manager was often the only associate in the store, which led to significant customer impacts in the weeks leading up to an inventory.

This example is not a one-off store from a poorly performing company; instead, it was a systemic issue taking place with an industry leader. Even leading organizations with the best intentions can fall down against complex retail realities, misaligned incentives and ineffective training and communications.

Through introspection and thoughtful, holistic planning (and sometimes outside help), retailers can expose these opportunities and devise approaches to remedy them.

Next time, we’ll explore how system limitations and a lack of oversight in handling promotional signage and pricing ended up costing a retailer precious labor hours and negatively impacting customer service capabilities.

– Chris