Stockouts – or ‘out-of-stocks’ – are enemy number one for retailers, especially in the run up to peak season. Running out of popular items results in lost sales, unhappy customers and a hit to your brand’s reputation.
If stockouts happen frequently, customers are likely to instead shop with one of your competitors – and they might never come back.
Managing the fallout from out-of-stocks (like offering expedited shipping or placing rush orders with suppliers at increased cost) can quickly eat into your bottom line, and it can be demoralizing for your team.
Avoiding stockouts is understandably a priority for retailers – but too many go about it in the wrong way.
As part of our recent research, we asked hundreds of merchants how they manage out-of-stocks. Here’s the methods they use, and why only ONE of them is right.
1. Stock checks and other internal processes
A quarter (25%) of retailers told us they use stock checks and other internal processes in a bid to keep stockouts at bay. It’s true that regular stock takes are important to ensure inventory levels are accurate and discrepancies are identified.
However, the cause of stockouts is typically inaccurate forecasting, which means when demand spikes there isn’t enough stock immediately available. Although stock checks are important, they shouldn’t be considered the weapon of choice in the battle against stockouts.
2. Safety stock
Two in 10 (23%) of retailers rely on safety stock to avoid stockouts. Safety stock is the extra inventory a company holds to protect itself against unforeseen fluctuations in demand or supply. Safety stock is not inherently a bad idea, but there are risks to be aware of.
The biggest risk with safety stock is that it ties up cash that could be used for other purposes, such as investing in growth opportunities, reducing debt or even simply paying wages and bills. When cash flow is already precarious, safety stock can have a major impact.
More inventory means higher holding costs, and safety stock can easily turn into obsolete stock if it isn’t managed carefully. It’s much better to forecast and plan with accuracy and keep safety stock to an absolute minimum.
3. Promotions, bundling and discounts
Nearly a third (30%) of retailers told us they use promotions, bundling and discounts as part of their strategy to avoid stockouts. Strategic promotions based on inventory availability (for instance, promoting products that have plenty of availability or a short supply chain) is a smart marketing tactic, but it’s not enough of a strategy to avoid stockouts of best-selling items or items that offer the biggest returns.
Proper planning is required, using reliable software, to avoid running out of these items – especially during busy periods.
4. Manual demand forecasting techniques
According to our research, a fifth of retailers (22%) rely on manual demand forecasting methods to avoid running out of stock. Demand forecasting is the way to avoid stockouts – but manual forecasting (including spreadsheets) is not the one.
Relying on manual methods like spreadsheets for demand forecasting can be problematic because they are prone to human error and lack real-time data updates are time-consuming. They also struggle to handle complex algorithms or large datasets, leading to less accurate forecasts which results in incorrect inventory ordering. Technology is needed to plan inventory accurately and reliably.
5. Investing in technology to optimize stock and forecast demand
One in five (22%) merchants are nailing the best approach to avoiding stockouts – they have invested in cutting-edge technology to optimize their stock and forecast demand. Software solutions like Inventory Planner are proven to be the most reliable and accurate way to eliminate out-of-stocks.
Inventory Planner analyzes historical sales and factors in seasonality, promotions and market trends to reliably predict how much you will sell. It then translates forecasts into reliable buying recommendations that are easy for your whole team to understand. With Inventory Planner, you can ensure you only ever invest in the right inventory, at the right time, to maximize your profits.
Start a free trial to see the difference Inventory Planner can make to your business.