11.7 End-of-Topic Case: Taking a Rain Check on Rain Checks

One bright and sunny afternoon, Chad is sitting in his office inside his store with his chin resting on his palm. He is the store manager of a 24-hour Walgreens. Although his store has among the district’s highest sales in general merchandise and processes among the most prescriptions per day, he entered the office that morning to another familiar sight: a stack of reports documenting all the rain checks his cashier had written over the previous week on merchandise on sale but out of stock.

Chad is stumped. He executes changes to his store’s planograms very quickly to make sure that new products arrive promptly on his store shelves and remove products that his store should no longer carry. He has his team of associates regularly working overstock inventory sitting in the stockroom to get as many products out as possible and minimize the potential for a product to simply get lost there, which would result in phantom inventory—a product that stays in the system even though nobody can find it. In short, he believes his store’s inventory is about as accurate as it can be!

Anatomy of an Out-of-Stock

To understand the raincheck situation, Chad decided to write down a list of activities that must take place in order to verify out-of-stock inventory:

  1. Store system generates an inventory exceptions report, listing products that are:

    • High historical sales but very low recent sales, with minimal inventory.

    • Recorded sales when inventory shows out-of-stock.

    • Out-of-stock and no recent sales.

  2. An associate takes the inventory exception report along with a hand-held scanner to verify both on-shelf inventory and any potential overstock.

  3. If inventory is out-of-stock, inventory control specialist would enter zero in the system and place an order for next warehouse delivery.

  4. Once warehouse shipment arrives and gets scanned in, an associate would take the same inventory exception report done previously to re-verify that inventory is now accurate.

  5. Once scanned in, the newly-delivered products may then be stocked on the shelves for a customer to purchase, or else the system would record a sale with no inventory, resulting in both inventory exception report and phantom inventory.

Of course, Chad is fully aware that associates may make mistakes. He called in Tina, his inventory control specialist, to ask her for her thoughts.

Tina walked in and cheerfully asked: “Hi Chad, why are you looking so glum?” Chad replied: “Well, I thought we have been doing a good job with managing our inventory, but we keep getting these thick stacks of rain check reports from our cashiers. It’s almost as if we are always out-of-stock on things that we need! Any thoughts on what we can do?” As Tina walked over to the reports and fanned through them, she started to realize the seriousness of the situation. “Well, I can think of a few causes…” Tina thoughtfully replied, “Do you think someone is making mistakes?”

“Maybe.” Chad agreed, “I don’t see where mistakes can be coming from. Our inventory control and exceptions process have been refined by our team of operations and improvement analysts. Tina, why don’t you go and take a look at all of our rain check reports to see if we can spot any patterns? In the meantime, I will put together a flow chart here to see where things could be going awry.”

“Okay!” Tina walked away and began to work on her report.

Later that day, Chad and Tina met up again to pool their parts together to try to solve this problem. Tina presented to Chad a random sample of rain check reports matched with inventory exception reports, organized by the associate who was responsible for processing the inventory exceptions list for that sample. As she presented them, Tina reminded Chad: “Given the size of our store, I would say that we typically expect to hand out no more than 40 rainchecks per day. Among them, I would expect no more than 40% of the rainchecks to be the result of phantom inventory.”

Associate Rain Checks Inventory Exceptions Inventory Exception %
John 33 17 52%
57 17 30%
60 12 20%
48 11 23%
Average 49.5 14.25 31%
Wesley 53 30 57%
37 11 30%
43 15 35%
31 16 52%
Average 41 18 43%
Katrina 44 12 27%
54 18 33%
36 14 39%
46 29 63%
Average 45 18.25 41%
Dennis 58 31 53%
69 28 41%
63 41 65%
72 61 85%
Average 65.5 40.25 61%
Liz 57 30 53%
36 27 75%
50 15 30%
36 10 28%
Average 44.75 20.5 46%

Questions

  1. Can you put together a flow chart based on the information given to you? And more important, can you identify, for each step of the flow chart, what mistakes can cause errors? For each error, can you put together a response plan?

  2. Using the information provided to you by Tina, can you put together a series of control charts to see if there’s one worker who is clearly struggling with inventory exceptions responsibility?

  3. What can you do to address this issue based on the above?

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