INVENTORY, COST OF RED OCEAN SUPPLY CHAINS, RETAILERS

$1.75 trillion for bad inventory decisions.  These firms are in the Red Ocean with their Red Ocean supply chains.  They need to move to Blue Ocean Strategy Using New Supply Chain Management.

Report: Retailers lose $1.75 trillion in revenue worldwide

May 6, 2015 | By Marianne Wilson

London -- Retailers worldwide lose a staggering $1.75 trillion annually due to the cost of overstocks, out-of-stocks and needless returns, according to new research from retail analyst firm IHL Group, commissioned by OrderDynamics.

The report, “Retailers and the Ghost Economy: $1,75 Trillion Reasons to be Afraid,” details the impact of overstocks, out-of stocks and needless returns — three of the primary components of the “Ghost Economy” haunting retail — on the $14.5 trillion retail economy worldwide. These inefficiencies result in “monies left on the table and the loss of sales that otherwise would be available,” according to the IHL study.

Here is how the losses stack up:

• Preventable returns: $642.6 billion each year
• Out-of-stocks: $634.1 billion each year
• Overstocks: $471.9 billion each year

For the majority of retailers, the combined impact of overstocks, out-of-stocks and preventable returns add up to 11.7% of lost revenue. Addressing the inefficiencies and data disconnects throughout their organization could mean the equivalent of adding $117 million in revenue for every $1 billion in retail sales — or an additional $2.9 billion in revenue for a $25 billion retailer.

“Retailers all too often focus on a variety of ways to drive revenue and increase comparable year-over-year sales, but retailers can realize huge gains by addressing opportunities that are in hand and slipping through enterprise fingers,” said Greg Buzek, president of IHL Group. “These problems are within retailers’ grasp to solve, but it requires more than data, more than business intelligence. It requires understanding the root causes of inventory and data disconnects and implementing the technology solutions and operational changes to address these revenue-limiting issues.”