The Causes of Stockouts (and How to Avoid Them)

An efficient inventory planning strategy is essential for any retail, e-commerce, or wholesale business. We’ve all experienced going to the store and finding that our favorite cereal, skincare product, or shoes we were planning to buy is sold out. When customers experience stockouts, they can get frustrated and end up looking for alternatives. This could mean getting an alternative product they might not really want or going to another retailer altogether. If customers can’t find what they are looking for at your store, they may stop coming there to shop.

Stockouts can be caused by a variety of factors, such as incorrect demand forecasting, supply chain interruptions, production issues, inadequate inventory management, or unanticipated demand surges. While not every issue is foreseeable, with accurate forecasting, proper inventory planning, and organized inventory management, businesses can greatly reduce the risk of stockouts while maintaining efficient inventory levels.

What is a Stockout?

A stockout, also known as out-of-stock (OOS), occurs when a business runs out of a certain product, resulting in an inability to meet customer demand. Stockouts affect many types of businesses, including retail establishments, e-commerce sites, wholesalers, and manufacturing firms. But the one thing they all have in common? When stockouts occur, customers aren’t happy. 

What Causes Inventory Stockouts? 

The causes of inventory stockouts can vary greatly, from poor planning to internal operational problems to changes in the external market. Here are some of the main causes of stockouts:

Inventory count discrepancies

A common cause of stockouts is discrepancies between the recorded item counts and actual inventory levels (phantom inventory). Technical issues, human error, or loss of goods due to theft or damage can cause disparities between item counts, leading to stockouts. Businesses that rely on inventory management systems with tedious, inflexible inventory counts are at greater risk of running into these issues, as spreadsheets and manual calculations may utilize out-of-date information and are prone to human error.

Inadequate forecasting and inaccurate reporting

Differences between available inventory and customer demand may arise if demand for a specific item exceeds the amount predicted. If demand forecasts are inaccurate, you may be left with insufficient stock to fulfill every order. To avoid this situation, it’s critical to invest in dedicated inventory planning software that can make reliable demand predictions and adjust ordering recommendations accordingly.

Sluggish stock replenishment

Stock replenishment ensures you have enough products to sell when your customers need them. Carefully planning stock replenishment is essential for maintaining optimal stock levels. Factors such as supplier lead times, shipping schedules, and inventory prioritization must also be considered in order to ensure the stock you need is on hand.

Lead time variability

Lead time variability can cause stockouts by making it difficult to predict when all required inventory items will be delivered. Knowing what and how much stock to order is important, but so is knowing when to place your orders so they arrive at the right time. This can get tricky, as different suppliers, vendors, and products can have varying lead times.

Lack of real-time data and visibility

A lack of real-time, up-to-date data on inventory levels, sales history, demand forecasts, and supply chain operations can make it more difficult for a business to adapt quickly to shifting circumstances, which raises the risk of stockouts.

How Do Stockouts Affect Your Business?

A stock shortage has a number of consequences that can affect businesses, consumers, and the economy as a whole. Here are some of the key consequences of a stock shortage:

Lost revenue

The most obvious consequence of stockouts is lost revenue. When a customer tries to place an order and finds that the item is out of stock, the business loses the profit from that potential sale. This can be particularly detrimental if customers opt for cheaper alternatives or shop elsewhere, resulting in lost sales and the potential loss of customer loyalty.

Poor customer experience

The impact of out-of-stock products on consumers can go well beyond that particular lost sale. When customers encounter stockouts, it can lead to frustration and disappointment. They may have to delay their purchase or find alternative sources, which can negatively impact their overall satisfaction with the business and lead to them shopping elsewhere in the future. 

Damage to brand reputation and loyalty

If repeated stockouts are creating a poor customer experience and leading to customer dissatisfaction, it can negatively impact your entire brand. Stockouts may be viewed as a sign of poor customer service and product availability, and in today’s world of online reviews and public customer feedback, this can have a reverberating effect on your reputation.

Increased operational costs

If a product is sold out and demand is there, companies may be forced to incur additional expenses by fast-tracking orders or using expedited shipping methods to get product quickly. Employees may have to stay late, scrambling to deal with backorders or rush shipments. These additional costs can impact profitability and erode margins.

Preventing Stockouts with Inventory Planner

The best way to avoid stockouts and the negative effects they can have on your business is through data-driven, reliable inventory planning. Inventory Planner’s cutting-edge software is designed to help retail, e-commerce, and wholesale businesses anticipate demand and ensure that they always have the right amount of inventory on hand without incurring unnecessary inventory holding costs

While manual inventory planning methods rely on spreadsheets to perform tedious calculations and static demand predictions, Inventory Planner continually monitors and adjusts customer demand forecasts and updates ordering recommendations accordingly.

Utilizing factors such as historical sales data, seasonality, customer demand shifts, supplier lead times, discounts and promotions, marketing campaigns, and more, Inventory Planner helps businesses maintain exactly how much inventory they should have at all times. The software uses up-to-date forecasting data to calculate optimal stock levels and ordering points, so you’ll easily know what, how much, and when to order to meet customer demand without collecting excess inventory. 

The best part? Inventory Planner makes all these calculations automatically. Advanced algorithms and cutting-edge technology enable the platform to automatically generate reliable forecasts and accurate buying recommendations for every level of your business, including individual SKUs, product types, sales channels, and inventory locations. 

Even if supply chains fluctuate drastically, Inventory Planner allows you to adjust stock cover days for items that are prone to unpredictable or long lead times to make sure you can accommodate customer demand. Once the stock cover days are adjusted, Inventory Planner automatically updates your purchasing recommendations.  

With Inventory Planner, you can streamline inventory planning and reduce stockouts that occur due to inefficient processes, error-prone manual calculations, and outdated methods. Inventory Planner’s reliable recommendations will ensure your business has the stock it needs to meet demand without tying up cash flow on inventory holding costs, ultimately increasing efficiency, reducing overhead, and boosting customer satisfaction and brand loyalty.

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