A Supplyve Blog Exclusive from our CEO Joey Rubinstein.
What is spot checking and why is it so problematic?
Marc owns a popular specialty foods franchise in the balmy city of Boca Raton, Florida. He is constantly running to serve customers, and make new sales. He loves working with shoppers and he by and large adores his job. Yet one aspect of his profession that he dreads is the monthly spot check.
A spot check is the trade name of the by-hand count of inventory that occurs to ensure store owners know precisely their in stock inventory quantities. As one can imagine, spot checking is a boring, time consuming, and inconvenient activity. Spot checks are frequently performed in the middle of the night, and can require expensive labor. That being said, they are an unavoidable side effect of being a retailer. Shrinkage, which is the loss of goods to employee theft, damage or expiration, causes the point of sale system (POS) or enterprise resource planner (ERP) to never have completely accurate inventory totals. Even slightly inaccurate inventory estimates can be problematic from an ordering perspective. For example, Marc looks at his ERP, which reports that he still has his best selling artisan pasta sauce in stock, but the last batch spoiled a week ago, and because of the ERP misreporting he hasn’t yet ordered more, and is missing key sales. Moreover, every year retailers are required by law to report their accurate inventory totals to the government, making the spot check a truly unavoidable part of retailer life.
How spot checking is done today Stores can either outsource, perform in house, or cycle count the spot check, with each option carrying its own pros and cons. Outsourcing the check to a third party is the easiest route for store owners, but is also the most expensive. Supplyve interviewed various third party spot checkers, and found that for a small to medium sized grocery store, with between 15,000 and 20,000 SKUs, a storewide spot check can cost around $5000. This figure is calculated either through individual items counted, or through estimated worker hours. Mostly, retail chains go the third party route, as it is simply too expensive for smaller retailers.
Small retailers have very limited funds, and therefore commonly perform in house spot checks. This is particularly problematic, as small retailers are time starved, and spot checking takes significant energy and attention away from other critical tasks. In fact, Supplyve performed a case study showing that a person who tracks their spot check by manually inputting product name and quantity into a spreadsheet can only count 17 different SKUs per hour. However, the spot checking process can be rapidly accelerated if workers utilize mobile barcode scanners.
Mobile barcode scanners allow workers to update inventory counts by scanning a product and just having to input the number of units on the shelf. Workers that spot check without having to manually input product details can count more than three times as many products. Of course, the mobile barcode scanners need to have a database with all of the relevant products, and the store owners we interviewed told us they were missing between 30-40% of their products in their POS system, which means that manual product data entry was extensively needed. The overall point being that in house spot checks are almost always a very long and arduous process, which especially for time-short businesses can be a real problem.
To reduce the stress induced by the enormous time investment in spot checking, owners can segment the store into different sections and have a schedule for when each section will be counted. This method is called cycle counting, and is likely the best option for smaller retailers. It does not require the same large all at once time investment, and it is mostly sufficient for business intelligence purposes. One big drawback, however, is there will never be a fully and 100% accurate picture of the entire store’s inventory at any given time, which means it is problematic from a tax reporting perspective. In a tax report, retailers need to report their accurate up to date inventory, and it is unclear if the results of a cycle count would qualify. Moreover, though it mitigates the previously mentioned problem with ordering it still does not completely address it, and the lack of precision can result in expired goods, dead stock or a host of other inventory problems.
The current methods of dealing with the spot check problem each come with their own respective disadvantages. The current optimal method, cycle counting, still has problematic drawbacks. Therefore, technological innovation should be considered the best potential route for a quick and efficient spot check.
Technological Advancements New spot checking technologies are still expensive and not completely fleshed out. Therefore, it will be quite some time before the cutting edge technology reaches the everyday retailers. That being said, the wait will be worth it, as there is enormous potential in the new solutions. In fact, new technologies could theoretically render spot checking completely unnecessary.
One solution was popularized by Amazon Go convenience stores, and applied to other retailers concurrently by competing startup Trigo. Essentially, the companies take hundreds of cameras and place them all around the given store. Then, by utilizing computer vision the companies identify which products are being taken off and put on the shelves. Applying Trigo’s approach means that retailers will always know exactly what is happening with their inventory. Spot checks will be a thing of the past. Unfortunately, to install and maintain these cameras is still very expensive and time consuming, and simply not practical for most retailers.
Robotics has also been attempted as a possible solution. San Francisco based, Bossa Nova Robotics is at the forefront of this approach, and even earned a contract with Walmart in 2017. Their robots roll through stores and utilize lidar technology and machine vision to count products. However, Walmart recently canceled the contract because the robots were not able to perform in the highly disorganized environment of stores, and were too expensive relative to the value they provided. The ultimate problem with the robots was that while technically possible to build robots that could handle high stress environments, Bossa Nova was unable to do so in a price friendly way.
These technologies are still far away for most retailers. For now, the best option might be to simply reduce manual product entry by figuring out a way to auto populate POS systems with the retailer's products, and continue to use mobile barcode scanning. Ultimately, it is apparent that whoever makes a cheap and scalable spot checking product will solve a really important problem, and capture a sizable market space.