Why retailers still struggle to optimise procurement, distribution and stock holding (and how to fix it in 2025)

Introduction

Retailers sit in a paradox: customers see “out of stock” while back-of-shop stores and warehouses hold too much of the wrong stock. Globally, inventory distortion (the combined cost of out-of-stocks and overstocks) was estimated at ~$1.7 trillion in 2024, with out-of-stocks alone driving ~$1.2 trillion (IHL Group, 2024). Meanwhile, returns remain a margin drain and capacity bottleneck, with U.S. retail returns projected at $890 billion in 2024 and fraud/abuse a persistent concern (NRF & Happy Returns, 2024; Appriss Retail, 2024). Against this backdrop, three friction points consistently undermine performance: procurement (lead-time volatility), distribution (last-mile cost and reliability) and stock holding (inventory record accuracy). It would be unrealistic to assume that the same trends do not apply to the rest of the world, especially considering the advanced state of deployment of IT systems in the USA.

Procurement: Fragile inputs and volatile lead times

Geopolitics and climate shocks continue to recut sailing schedules, transit times and landed costs. Early 2024 saw Suez Canal trade drop ~50% year-over-year, with carriers rerouting around the Cape—lengthening lead times and straining working capital (IMF, 2024; UNCTAD, 2024). These disruptions push planners to rethink “static” safety stocks and single-lane dependencies, while survey data shows leaders simultaneously wrestling with forecasting, talent and customer-demand complexity—and stepping up tech investment to orchestrate end-to-end decisions (MHI & Deloitte, 2025).

• Demand sensing with volatility-aware buffers: safety stock flexes to variability—not just volume.
• Supplier collaboration on OTIF with shared short-interval forecasts and tiered incentives/penalties.
• Scenario buying: multi-lane PO splits and pre-booked space on risk-exposed lanes.

Distribution & fulfilment: The last-mile squeeze

The last mile is the costliest leg of retail logistics. Analyses place it around ~40–50%+ of supply-chain delivery cost, depending on market/geography (Capgemini Research Institute, 2019; Capgemini, 2023; McKinsey, 2018). Persistent Red Sea reroutes and port congestion amplify variability and cost, with carriers, shippers and retailers reporting delays, higher premiums and service knock-ons (Reuters, 2024; UNCTAD, 2024). Leaders are countering with market-based fulfilment (keeping inventory close to demand) and AI-assisted routing/slotting. For example, Walmart has commercialised its in-house AI route optimisation (Walmart Corporate, 2024), while Target is scaling sortation centres to shrink delivery radii and improve next-day performance (Target Corporate, 2024).

• Localised inventory pools (stores/micro-fulfilment) to shorten promise windows and reduce miles.
• Dynamic promise & routing tied to real network capacity.
• Returns design (smart triage, secondary markets, fraud controls) to cut reverse-logistics waste (NRF & Happy Returns, 2024).

Stock holding: When inventory records are wrong, everything else is wrong

Most replenishment logic assumes the on-hand file is accurate; in practice, store-level inventory accuracy commonly sits near ~60–65%, creating “phantom” stock that starves replenishment and misleads planners (ECR Retail Loss, 2019; Auburn RFID Lab, 2023; RFID Journal, 2016). RFID programmes routinely lift accuracy to ~95–99%, enabling store-fulfilment and better on-shelf availability (McKinsey, 2021; Avery Dennison, 2023).

• Targeted cycle counts or RFID on the highest-velocity categories/locations.
• Multi-echelon inventory optimisation (MEIO) to decide where to hold stock across DCs, stores and vendors.
• Signal cleansing (promo lifts, cannibalisation, marketplace leakage) feeding forecasting and reorder logic.

A pragmatic 90-day roadmap

Days 1–30: Stabilise & See

• Control-tower view of POs and variability by lane (ETA ranges, not point ETAs).
• Truth-up on-hand for the top 20% SKUs/locations (rapid counts; flag phantoms).
• Returns baseline: cost-to-process by reason code and channel (NRF & Appriss, 2024).

Days 31–60: Optimise the obvious

• Dynamic reorder points: volatility-aware safety stock in one pilot category.
• Market-based fulfilment pilot for one metro; re-promise from local pools (Target Corporate, 2024).
• Supplier OTIF sprints: weekly huddles with top suppliers; publish a simple scorecard.

Days 61–90: Scale what works

• RFID / exception-based counting rollout to two more categories; set ≥95% accuracy target (McKinsey, 2021).
• Returns redesign: nudge to drop-off networks, fast resale/refurb loops; apply fraud analytics (NRF & Happy Returns, 2024; Appriss Retail, 2024).
• Automate the reroute: add AI route optimisation or rules-based dynamic slotting (Walmart Corporate, 2024).

KPI scoreboard (track weekly)

• Forecast error (MAPE) by SKU-location and lead-time variance by lane.
• Supplier OTIF (on-time, in-full).
• On-hand accuracy (target ≥95% with RFID or tight cycle counts) (McKinsey, 2021; Auburn, 2023).
• Inventory distortion (in currency): out-of-stocks + overstocks (IHL Group, 2024).
• Last-mile cost per order and promise-aware on-time % (Capgemini/McKinsey).
• Return rate & cost-to-process, refund cycle time, recovery % (NRF & Appriss, 2024).

How a flow-based planning tool like OneBeat helps

OneBeat (built on Theory of Constraints principles) is designed to increase flow and reduce inventory distortion by continuously re-balancing stock where it matters most.

Demand sensing & dynamic buffers: OneBeat adjusts safety stock by SKU×location based on recent demand volatility and lead-time variability—reducing both stockouts and overstocks without blunt “just in case” inventory.

Daily reorder & allocation optimisation: It generates actionable buy/transfer recommendations that push units to the highest-return locations (DCs or stores) before service breaks.

Multi-echelon view: The engine evaluates constraints across suppliers, DCs and stores, improving where inventory is held for best availability and cash-to-cash.

Exception-driven workflow: Planners focus on the few items that move the needle—e.g., high-velocity SKUs at risk, promotions, or lanes with deteriorating lead-time stability.

Measurable outcomes: The operating model aligns to the KPI scoreboard above—MAPE↓, OTIF↑, on-hand accuracy↑, distortion↓, last-mile promise reliability↑—so wins show up in both availability and working capital.

References 

1. Appriss Retail (2024) 2024 Consumer Returns in the Retail Industry Report. Available at: apprissretail.com (accessed 17 September 2025).
2. Auburn University RFID Lab (2023) Inventory Accuracy — Whitepaper. Auburn University. Available at: rfid.auburn.edu (accessed 17 September 2025).
3. Capgemini Research Institute (2019) The Last-Mile Delivery Challenge. Capgemini. Available at: capgemini.com (accessed 17 September 2025).
4. Capgemini (2023) ‘Navigating the complex web of last-mile deliveries’, Expert Perspectives, 5 October. Available at: capgemini.com (accessed 17 September 2025).
5. ECR Retail Loss (2019) Inventory Inaccuracy in Retailing: Does it Matter? Research report. Available at: ecrloss.com (accessed 17 September 2025).
6. IMF (2024) ‘Red Sea Attacks Disrupt Global Trade’, IMF Blog, 7 March. Available at: imf.org (accessed 17 September 2025).
7. IHL Group (2024) Fixing Inventory Distortion — Are We There Yet? IHL Services. Available at: ihlservices.com (accessed 17 September 2025).
8. McKinsey & Company (2018) How last-mile delivery could be reshaped by technology. Logistics Insights. Available at: mckinsey.com (accessed 17 September 2025).
9. McKinsey & Company (2021) RFID’s renaissance in retail. Retail Insights, 7 May. Available at: mckinsey.com (accessed 17 September 2025).
10. McKinsey & Company (2024) Digitizing mid- and last-mile logistics handovers to reduce waste, 5 January. Available at: mckinsey.com (accessed 17 September 2025).
11. MHI & Deloitte (2025) Annual Industry Report — Orchestrating End-to-End Digital Supply Chains. Press release/summary, 19 March. Available at: businesswire.com / finance.yahoo.com (accessed 17 September 2025).
12. NRF & Happy Returns (2024) 2024 Retail returns total $890 billion. Press Release, 5 December. Available at: nrf.com (accessed 17 September 2025).
13. NRF (2024) 2024 Consumer Returns in the Retail Industry. Research brief, 5 December. Available at: nrf.com (accessed 17 September 2025).
14. Reuters (2024) Maersk says impact from Red Sea attacks continues to intensify, 5 September. Available at: reuters.com (accessed 17 September 2025).
15. Target Corporation (2024) Sortation Centers — Fact Sheet. Corporate newsroom, 23 August. Available at: corporate.target.com (accessed 17 September 2025).
16. UNCTAD (2024) Suez and Panama Canal disruptions threaten global trade and development, 22 October. Available at: unctad.org (accessed 17 September 2025).
17. Walmart Corporate (2024) Walmart Commerce Technologies launches AI-powered logistics route optimisation, 14 March. Available at: corporate.walmart.com (accessed 17 September 2025).