Simone Peinkofer is an Assistant Professor of Supply Chain Management at Michigan State University. Simone is an alumnus of the Walton College and received her PhD in Supply Chain Management in 2016. With a strong focus in inventory visibility, Simone's research focuses on how price promotions affect consumer responses to online stockouts.
Episode Transcript
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00:05 Matt Waller: Hi, I'm Matt Waller, Dean of the Sam M Walton College of Business. Welcome to Be EPIC, the podcast where we explore excellence, professionalism, innovation, and collegiality, and what those values mean in business education and in your life today.
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00:27 Matt Waller: I have with me today, Simone Peinkofer, assistant professor of Supply Chain Management at Michigan State University. She received her PhD in Supply Chain Management from the Walton College of Business at the University of Arkansas almost four years ago, May of 2016. And I know you are from Germany.
00:51 Simone Peinkofer: Yeah.
00:52 Matt Waller: You have a bachelor's degree from the Technical University of Munich, you have a bachelor's degree from Colorado State, and you have a Master's degree in Business from Colorado State. Of course, your research is squarely in line with things I'm very interested in as a researcher. Just to give the listeners an example of some of the things that Simone has worked on, she's looked at how price promotions affect consumer's responses to online stock-outs. She's done work on the impact of limited inventory availability, and disclosing that online, and seeing how consumers respond to online stock-outs in those situations. Simone, sometimes you're shopping in a store and you're looking for something, and they're out of it. And an associate could say to you, "We can order it online for you." Well, that sounds like an interesting topic and I understand that you're doing some research on that.
01:57 Simone Peinkofer: Yes, I'm working on a couple of project that actually looks at this notion that you just described of saving the sale. So retailers, lately especially, recognize how much money or revenue they actually can generate if they empower employees, in terms of saving the sale. And yeah, so it was kind of interesting, because I started working with a colleague from a different university who had a connection to a national retailer. And we proposed different types of projects, because it's not only saving the a sale, but there's a whole omni channel environment, it's still something retailers are struggling with. And we proposed three different topics to them that we would be interested in cooperating with them, and they picked saving the sale, because for them, it was a one of their top priorities. And that retailer, they just, in a couple of stores they had rolled out a format where you actually have kiosks. So if you can't find a product in the store, then you as a customer, you can go to the kiosk and actually, A, look it up online, where when it's available, or you can look at a larger assortment that's in the store. If you look at Target, they are giving their sales associates now devices, handheld devices that allows the sales associates to be proactive.
03:24 Simone Peinkofer: So when costumers are searching for item and it's not available, they can approach them and offer them to have it ordered online. So this is the whole notion that I got interested in over the last couple of years, because I looked at, like you said, consumer responses to stock-outs, but it goes beyond that, in terms of: Well, how can you turn those negative feelings of customers into positive feelings, and providing the best service that you can as a retailer to your customer? This whole notion of saving the sale, you can have the... The retailer can offer, for example, "Oh yeah, we can order it online and then we ship it to your house." Some retailers might ask you to pay for shipping, which we know consumers don't like to pay for shipping. Some say, "Hey, we can order it online and we ship it for free to the store, so you can come back in a couple of days and pick it up." So, we have looked into this notion of whether consumers or end and customers prefer to have it shipped to the house or shipped to the store, and in what kind of timeframe. So, yeah, we looked at these two attributes of the delivery location, whether it's delivered then the store, to consumer's home, or the delivery time, whether it was, I think we had like a two-day shipping versus a longer period of time.
04:47 Simone Peinkofer: And while customers that were shopping, just for themself, like a leisure shopping, they really wanted fast shipping, and the most convenient delivery location, which was the home for them to kind of restore that dissatisfaction that they experienced initially after the stock-out. When customers were shopping for a birthday gift for their spouse, it actually had a substitution effect. So you could provide them with fast shipping, but to the store, and it would be as valuable to kind of recover from that stock-out as saying, "Well, yeah, we show it to your home, but you have to wait a little bit longer," whenever, whatever then that comes in.
05:33 Matt Waller: So one thing that this makes me think about a little bit is this new approach, save the sale, reduces the cost of a stock-out. So the optimal level of safety stuck overall, other things being equal, should be lower in stores than it used to be, because of these kinds of technologies. Is that correct?
05:55 Simone Peinkofer: If you look at inventory policies, the cost of a stock-out, A, it's very, very difficult to capture it in terms of a monetary value. So, a lot of inventory models are actually fairly simplistic. And just put a price on it, if you can guesstimate it or they ignore it, because they just can't put that price on it, because you have, A, the short-term loss of sales. But then if a customer experiences stock-outs over and over again, that person might not come back. So, there's a lifetime value too, it's just very difficult to assess. And I think that's something retailers have struggled with, and that's we, as researchers are struggling with, in terms of like, "Okay, how can we integrate that type of cost into our inventory models?"
06:47 Simone Peinkofer: I think there's a lot of opportunity out there to kind of combine that and improve inventory models. It's just I'm not a modeler, so I can't solve the problem. But I think gaining these consumer insights, it helps retailers to develop their strategy around it. So we provide some valuable insights in terms of generating supply chain strategy, because if you look at a stock out from a retailer's perspective, the retailer has an inventory policy. They need to have that because they're balancing their cost of holding the inventory and also ordering, if you go back to the simple UK model.
07:30 Simone Peinkofer: But for customers, a stock out is a severe service failure, because the customer goes into the store wanting the product to be on the shelf. When they go to... That's their expectation, they expect while they walk in. So, while the retailer might say, "Well, we have our optimal inventory policy. If we order X amount of this product, we optimize and minimize our total costs." For them, that might be okay, but I think the retailers need to understand, and we see it in the popular press, they understand it that the customers don't think that way when they go into a store. For them, it's like, "I want the product and I want it now. And I drove to the store and it's not there, and I'm angry and I'm not going back."
08:17 Matt Waller: So in some ways, this technology has an effect of reducing the cost of a stock out in the store because there's another option. But on the other hand, it increases the cost of the stock out because a customer will think, "Well, I could have bought that online." Before that was an option, they didn't think that. They thought, "Well, this is the only option. I've gotta get this directly go to another store." But now, because they could have ordered it online, that makes it even more frustrating to some degree, 'cause they went to the effort to go to the store.
08:53 Simone Peinkofer: Yeah, so I think that, overall, the retailers need to have the necessarily visibility to the inventory. Right? If you have... If you're operating as a retailer, you're a store network and at the same time, you have an e-commerce presence. But you can see from your technology systems whether actually the inventory is available either at a different store, in your online channel or even sitting in the distribution center. You really can save the sale in that point in time. So I think that having the technology and allowing that visibility in terms of "there's my inventory actual position," it's like one of the key aspects. And I think if you don't have it, like exactly what you said is, "Okay, customers come in." Yeah, they go online. Because you can recover if you don't have to visibility, you can recover. But if they come in the store and you have the inventory visibility, and it's out of stock and you offer them to check whether it's available somewhere else and order it online for them, you keep them within your retail network. For you, it doesn't matter whether that inventory is coming from a different store or the online channel. It's about satisfying the customer at that point in time and not losing that person.
10:16 Matt Waller: Since e-commerce has really grown, the idea of drop shipping has proliferated. And I think sometimes people mean different things by drop shipping. You could order from retailer A online and the supplier drop-ships it directly to the customer, that's a possibility. But there's other ways drop shipping can occur as well. Would you... What is the correct view of what is meant by drop shipping?
10:48 Simone Peinkofer: So the aspect of drop=shipping that I'm working on is exactly what you describe where a product that is purchased from a retailer is in the end actually delivered straight from the manufacturer, the supplier, to the customer, to the customer's home actually. Over the last couple of years, we as customers have become very comfortable about ordering online heavy and bulky items. So if you think about a retailer who has maybe limited back room availability, they don't necessarily wanna store and a lot of fridges or ovens... So let's take Home Depot or Lowes. These companies that are selling especially heavy and bulky items, for them, it's a very... I wouldn't call it easy, but a very convenient method to fulfill a consumer's or customer's request. And the good part is, for the retailer, they don't even have to hold the inventory. So they are not at risk of holding inventory not, in the end, being able to sell it. So they are passing that on to suppliers. So we see that in retail. It's becoming more and more popular.
12:03 Simone Peinkofer: I worked with a national appliance manufacturer, because they were requested by their retail customers to suddenly do drop shipping... Which, again, was more like a marketing team's fault in terms of, "Oh yeah, we can do it," without going back first to check with the operations department whether that's actually something that they were able to do. So they had to learn the hard way, in terms of developing the necessary capabilities to now ship individual products to a consumer's home, but at the same time, make it look like it's actually coming from their retail customer. Which I thought was really interesting, that if a customer doesn't really understand retail supply chain, retail fulfillment. And we as consumers, we don't know where the products are actually coming from. It just looks like it is coming from the retailer, but indeed, it's very likely that it's actually coming straight from the manufacturer and the supplier. And I think what was very interesting when I worked with that company is that they, over time, developed these capabilities to do it actually very good and become good at drop shipping, that they actually decided to open up a direct channel and sell their products directly to consumers. Which, again, then gets into the whole competition between product manufacturers and retailers. So I think that's something they still have to figure out how to do that without damaging any relationships.
13:37 Matt Waller: Well, Simone, your research is very interesting, and for a young researcher, you have made a lot of progress in a short period of time. So, congratulations.
13:48 Simone Peinkofer: Thank you.
13:49 Matt Waller: Thanks for taking time to visit with me about this.
13:52 Simone Peinkofer: Thank you, Matt.
13:55 Matt Waller: Thanks for listening to today's episode of The be epic podcast from the Walton College. You can find us on Google, SoundCloud, iTunes, or look for us wherever you find your podcasts. Be sure to subscribe and rate us. You can find current and past episodes by searching "BeEpic podcast", one word, that's B-E E-P-I-C podcast. And now, be epic.
