Stockouts: What Are They And How To Prevent Them
In today’s increasingly competitive retail landscape, many businesses have focused on ensuring that customers get exactly what they need and when they need it. There’s a thin line between ecommerce and physical retail stores that has blurred even more in recent years, meaning many shopping journeys that begin with online research often end with an in-store purchase, or the other way around. Yet even the foremost diligent customer-focused stores can still struggle with one amongst the most important challenges any retailer can face—running out of stock.
Stockouts are among the primal frustrating experiences for online and in-store shoppers. Stockouts don’t just create disappointment and frustration for customers, they also create missed opportunities to involve shoppers, revenue isn’t generated and a retailer’s brand image is overall damaged.
What are stockouts?
Stockouts are often defined as the unavailability of specific products at the point of purchase when the customer is prepared to buy. In physical stores, this usually means obvious gaps in a store’s shelves. In terms of online retail, stockouts are sometimes even more frustrating for consumers, as there’s often little to point out whether the out-of-stock is right down to a brief technical problem or a serious disruption in the retailer’s supply chain.
It’s worth noting that there’s a subtle yet important distinction between out-of-stocks and generalized product unavailability.
What causes products to be out of stock?
Although there are only a couple of likely outcomes from out-of-stocks, like customer frustration and lost sales, there are various other scenarios which will cause stockouts in the first place.
Disparities between item counts
One of the foremost common causes of stockouts may be a disparity between item counts or a record of what number of units of a specific item a retailer has in stock.
There are four main reasons why there could also be discrepancies between item counts:
- Human error
- Technical issues
- Shrinkage, or the loss of products because of damage or theft
- A combination of the above
Although it’s difficult to quantify, many mistakes in inventory management can often be attributed to human error. Miscounting items are often too easy during busy shopping periods, especially in retail stores, which makes mistakes not just possible but more probable in some environments.
Technical problems may also cause disparities between one item count and another. Many warehouses and distribution centers rely on computerized inventory management systems. But when those systems have technical issues, like data center downtime, or there’s a delay within the synchronization between two computerized systems, discrepancies in item counts become more likely.
Sometimes, a mixture of those two factors is responsible for inventory mismatches. Just as it’s only too easy for busy warehouse personnel to miscount items by hand, it’s even as easy to input the incorrect data into a listing management system.
Stockouts are often caused by unexpected surges in consumer demand. However, inadequate forecasting or inaccurate reporting can cause out-of-stocks too.
Most retailers would probably tell you their most popular items offhand—yet many inadvertently allow their most purchased products to sell out due to inadequate forecasting. If a retailer cannot effectively anticipate demand for a selected item, it’s almost inevitable that some customers will get disappointed when that item is unavailable.
Similarly, inaccurate reporting can cause products to be out of stock too. Retailers can only make business decisions based on the wealth of information available to them. If sales reports are inaccurate, making informed decisions about inventory purchases becomes difficult to execute.
Delivery and logistics issue
While many inventory management issues are well within retailers’ control, logistical problems often aren’t.
Retailers might not be ready to do much about climatic conditions or the mechanical problems of a delivery vehicle. Unfortunately, logistical problems aren’t always this straightforward. Even as it’s easy for goods to be misplaced by warehouse staff, it’s just as easy for the incorrect shipment to be delivered to the correct location.
Similarly, a logistics provider’s shipping catalog might indicate that a shipment is on the road for delivery, when, in fact, that shipment is still waiting to be processed at a distribution center. Magnify this problem across many products due to be shipped to thousands of shops and it becomes easier to ascertain how critical accurate logistics information is often .
How can retailers avoid running out of stock?
Many retailers react to stockouts instead of taking active measures to prevent them. With a touch planning and therefore the right tools, retailers can proactively avoid out-of-stocks and ensure their customers are happy.
Reconciling disparities in item counts
Stockouts often occur when there are differences in item counts from one inventory management system to another. Eliminating human error entirely is practically impossible but, fortunately, ensuring inventory data is up-to-date is far easier.
Forecasting demand more accurately
Another common reason for an out-of-stock is insufficient or inaccurate inventory forecasting.
Anticipating demand for specific products may be a major challenge for retailers.
Accurately predicting what proportion inventory a retailer will need and by when will be easier for certain retailers than others. Businesses that rely specifically on seasonality, like winter sporting goods stores or beach apparel sellers, may find it much easier to predict demand for specific products. That said, there are ways for retailers of all kinds to anticipate demand and avoid stockouts.
One of the primary things for retailers to think about when preparing inventory forecasts is time interval or the time between placing an order for brand new products and really receiving those products from a supplier. A method to measure time intervals is to look at previous purchase orders from specific suppliers. This probably won’t be enough on its own, but it can function as a start line for calculating time interval from individual suppliers.
Calculating time intervals can even help retailers plan for busier shopping periods. However, stores run the danger of stockouts if they fail to require lead time demand under consideration .
Another factor for retailers to contemplate when predicting anticipated demand for specific products is “safety stock” or the quantity of stock a retailer has available to act as a cushion against unexpected surges in demand.
Managing logistical challenges
Although retailers can only exercise a certain amount of control over how and when their goods are shipped, there are a variety of best practices retail brands can follow to attenuate the danger of stockouts due to logistical problems.
Retailers concerned about shipping problems causing out-of-stocks might want to think about working with a logistics provider that provides advanced shipping notifications (ASN). When shipments leave a warehouse or distribution center, retailers are notified and given an estimated time of arrival. Fortunately, many major logistics providers now offer ASN as standard, but it may be worth checking whether smaller logistics companies offer ASN before making a commitment.
Choosing the correct logistics provider allows customers to target their core business while feeling confident that their transport needs are being addressed properly. Cross-docking is an option retailers also might want to gauge before choosing a logistics provider. Cross-docking is the practice of loading merchandise to be shipped to customers directly from a manufacturer without being stored in a warehouse or processed at a throughput center. Cross-docking can work well for retail businesses that provide dropshipping.
Ultimately, logistics management isn’t always about minimizing the danger of stockouts. It’s about having the ability to retort to emerging problems quickly and provide shoppers with superior customer service when things do fail .