Welcome to the 2nd post of our 3-part series exploring real-world cases where well-intentioned policies resulted in unintended negative consequences. In our first post in this series, we discussed how incentives related to a single, year-end inventory accuracy target drove store staff to compromise inventory positions, customer service and sales throughout the year through a myopic focus on a single metric. This week, we focus on how misaligned measurements, incentives, and systems can force store managers to develop rogue and labor-intensive workarounds.

In-store signage can be generated in a plethora of ways. Typically, strategic planning activities set concrete goals for the organization well in advance, driving several more granular merchandising initiatives. These initiatives are then planned throughout the year and supported by a marketing calendar, which drills down to generate specific promotions and price offerings day-by-day and week-by-week.

These promotions and their associated price points / discounts are typically fed into complex, centralized systems that set the prices by item and location (often driven by store clustering methodologies), track promotion duration, determine shelf locations, define inventory levels, and establish in-store dates before being sent downstream to the stores. However, many retailers still rely on legacy systems that are manual, have limited integration, and experience rampant data quality issues – severely hampering the processes designed to push critical promotion and pricing data to store systems.

Illustrative review metrics

When presented this way, the disconnect is obvious, but as a home office organization doing the best with what they have, constantly time rushed and putting out fires, while under pressure just to execute day-to-day activities, the problem is much less evident.

For the home office, policies had evolved to focus on quantity, ensuring that the signs themselves just made it to stores, with neither the focus nor bandwidth to fully vet prices prior to distribution. For this industry leader, with over 1,000 stores and $7 billion in sales, their well-intentioned policy resulted in significant negative consequences. This retailer’s combination of millions of printed signs, numerous manual processes, and typical data integrity and system integration issues effectively crippled their store managers’ ability to deliver accurate prices to the customer.

Corporate and information technology resources were working within the confines of their systems, and didn’t focus on the error rate as much as ensuring the signage was delivered to the stores on time. Meanwhile, the merchandising and marketing teams were changing prices constantly to remain as competitive as possible, taking advantage of a system without checks and balances.

And no one was slowing down for store management, much less hourly employees.

Over time, as signage quantities (and errors) ballooned, store management realized they could not rely on signage coming from corporate to be accurate. Therefore, to protect their jobs, reviews, and bonuses, they did the only thing they felt they could: as soon as signage came into the store, they began shifting significant portions of labor to auditing and replacing it. The problem was so widespread that managers would set the signs overnight, then immediately send in another team the next morning to begin scanning and replacing the thousands of signs they’d put up the night before, continuing this scanning periodically until the promotion ended.

Once one promotion was complete, the entire process began again.

These hours to “fix” signage issues were pulled from whichever area was necessary: customer service, freight processing, the sales floor, replenishment and other key areas – negatively impacting productivity and the customer experience throughout the store.

The Solution

This post provides yet another case study from a large and successful retailer, showcasing how critical it is that different departments collaborate and deeply understand the total impacts of processes, incentives, and policies not just on themselves, but on the rest of the organization and most importantly, the customer.

Stay tuned for more “good intentions” related to inventory management next week.

– Chris