For businesses to remain competitive in today’s market, learning how to prevent stockouts with proactive inventory management is key. A stockout, also known as out-of-stock (OOS), occurs when a product is sold out or unavailable for purchase. This can occur at any point throughout the supply chain. Although it’s usually caused by unforeseen circumstances, poor inventory management can also be to blame.
A stockout can be a costly problem as customer loyalty and a company’s reputation is at stake.
Common Causes of Stockouts
Below are some of the main reasons why stockouts occur:
- Inaccurate Forecasting: By not staying updated on customer demands, trends, and the economic forecast, a company can inaccurately order inventory and stock a low number of products.
- Lead Times: If the amount of time between placing an order and receiving is longer than a customer anticipates, a company could see a shortfall in inventory and/or customer orders, leading to stockouts.
- Supplier Issues: Whether a supplier is unable to obtain required materials, manufacturers need to do repairs, or the industry is facing a labour shortage, delays along the supply chain result in stockouts.
- Demand Changes: Certain industries can see a sudden change in customer demands, particularly with trends in the fashion, cosmetics, or food industries. This can cause an upswing in stockouts.
Related: The Role of Demand Management in Supply Chain Optimization
The Consequences of Stockouts
So, what happens if you experience a stockout in your inventory management? There could be many consequences to out-of-stock inventory.
The Impact on Customer Satisfaction and Loyalty
Customer satisfaction is vital to retaining customer loyalty. A stockout, especially if it’s a frequent occurrence for a company, can lead to poor customer experiences. These same customers will lose faith in your brand and turn elsewhere to spend their money.
Financial Implications and Potential Revenue Loss
Financially, a stockout can cost a company both in the short term and the long term. Administration and backorder fees can also have costly consequences. When a customer isn’t able to purchase an item from you due to a stockout, they may opt for a cheaper substitution or may stop doing business with your company forever.
Long-Term Effects on Your Brand Reputation
The long-term effects of recurring stockouts can not only lead to a loss in revenue but can also damage your brand reputation. The retail and e-commerce realms are competitive and customers have a wealth of similar products from other companies to choose from. Social media platforms are loaded with customers’ bad reviews which can spread like wildfire.
Strategies for Preventing Stockouts in Inventory Management
Billions of dollars are lost every year due to poor inventory management, whether it’s from wasted supplies, loss of sales, or the financial effects on a company’s brand. While an issue along the supply chain may be unavoidable, there are measures you can take to prevent stockouts from occurring.
Demand Forecasting for Accurate Predictions
Demand forecasting refers to developing a formula to accurately predict future customer demands. Using past sales, peak times, and emerging trends, calculating what will be needed and when it will be needed is possible. With the proper inventory management solution, a company can maintain sufficient inventory levels to avoid low stock or stockouts.
Establishing Safety Stock Levels
Establishing safety stock levels is a form of insurance for a company. It ensures that the company maintains a certain amount of a particular product for anticipated high sales. Having too much stock leads to overstock and too little is a stockout. That is why following this formula can help you keep the order processing seamless:
Safety stock = (maximum daily sales x maximum lead time) – (average daily sales x average lead time)
Utilizing Real-Time Inventory Tracking
Real-time inventory tracking is an essential tool in preventing stockouts. This software provides an accurate trail of supply and demand. It monitors the outgoing orders to initiate an effective lead time for a particular product.
Setting Reorder Points
With the use of real-time inventory tracking, you can set reorder points based on the purchase patterns of customers. Reorder points establish the appropriate time to contact suppliers for more products. Utilizing an automated system can reduce stress, alleviate workloads, and prevent stockouts, leading to higher customer satisfaction.
Regular Audits and Cycle Counts
Automated reorder point systems and real-time inventory tracking can only achieve a specific goal. Conducting regular audits and cycle counts are still essential tasks of a company to lower the risk of stockouts. This involves scheduling a time to check groups of organized SKUs to ensure the numbers correlate with the inventory management software.
Effective Supplier Collaboration
As stockouts can occur at any point along the supply chain, companies should build a strong relationship with each supplier. Make sure to communicate individual peak times or foreseeable increases in customer demand to your suppliers, who can then take proactive steps to ensure orders are filled.
Leveraging Technology for Efficiency
Inventory management solutions depend on the use of technology that can meet the growing demands of a business. Order processing, replenishment, and inventory tracking require automation to prevent stockouts. A company needs to use appropriate solutions that will involve reorder points, real-time inventory tracking, stock forecasting, and customer trends.
Contact Lean Supply Solutions for Tailored Inventory Management Solutions
At Lean Supply Solutions, we focus on improving your business revenue, customer loyalty, and customer satisfaction with a range of inventory management solutions tailored to your needs.
Our expertise and experience in the supply chain management field can help to manage your inventory, order processing, storage, and other related organizational tasks. With advanced technology, we can reduce your company’s workload while improving productivity and revenue by offering flexible responses to your customers’ needs.
To learn more about how we can help prevent your company from experiencing stockouts, contact us for a consultation.
Also Read: Best Practices to Track Your Inventory
