Stockouts: What They Are And How To Prevent Them
Most retailers have experienced a stockout at some point – an item spikes in demand and you just don’t have enough inventory to fill all of your orders. Not only do stockouts slow down your supply chain, but they also damage important customer relationships. However, there are many ways to prevent stockouts and keep your supply chain running smoothly.
At Unilog, we help our clients prevent stockouts with comprehensive end-to-end supply chain management. We use detailed supply and demand forecasting based on existing data to help you manage your inventory, so you’ll stay prepared for periods of high demand. Our Logivice software and IoT technology gives you total visibility into your supply chain, so you can pinpoint abnormalities and address them before they result in stockouts.
Let’s take a look at what stockouts are and the steps you can take to prevent them.
What is a stockout?
Stockouts are when a specific piece of inventory is completely unavailable for customers. More specifically, a stockout happens when the customer has identified the item they would like to purchase, but finds it to be out of stock when they go to make the transaction. This can happen both in online shops and in brick-and-mortar retailers when products aren’t available.
Stockouts can happen for a variety of different reasons. These include:
A period of unexpected high demand is one of the most common causes of a stockout. Consumer trends can fluctuate very quickly, especially with the advent of social media and “viral” products. Major world and economic events can also affect consumer demand levels. For example, during the COVID-19 pandemic, essentials like masks, toilet paper, and canned goods spiked in demand over the course of a few days. Events like this make it very difficult for suppliers to plan ahead.
Supplier issues can also cause stockouts. In order to qualify as a stockout, the issue must be with a specific supplier, rather than a general product shortage. Using multiple suppliers in different parts of the world can help you prevent stockouts from happening.
Budget and Planning Issues
Internal planning or organization issues may also lead to stockouts in extreme situations. For example, budgetary restrictions could limit you from purchasing new products. Some stockouts also happen purely as a result of human error, whether that’s errors in your inventory or sales reporting or just failing to order the correct amount of product.
How To Prevent Stockouts
While stockouts are frustrating for both you and your customers, there are things you can do to prevent them from happening. Here are some of the steps you can take to prevent stockouts at your organization.
Comprehensive Inventory Management
Comprehensive inventory management and visibility is key to preventing stockouts. It’s important to make sure you’re conducting consistent and accurate inventory counts, which you can use to make informed product ordering decisions.
Many companies are now opting to conduct their inventory counts on a rolling basis, rather than doing it all at once. Counting smaller batches of specific items at more frequent intervals ensures that your inventory numbers are consistently up to date. You also won’t have to interrupt your operations to take inventory.
It’s also crucial for all parties involved in your supply chain to have access to accurate and up-to-date inventory counts. Many stockouts happen as a result of miscommunication about inventory numbers. At Unilog, we use our Logivice software program to ensure that all relevant parties are informed of inventory counts and abnormalities. This level of transparency makes for more efficient and accurate planning.
Accurate Demand Forecasts
Developing formulas for accurate demand forecasting is also crucial to avoiding stockouts. The more accurately you can predict consumer demand, the easier it is to keep your product in stock. Historic sales and inventory data is the best way to identify supply and demand patterns for your product and create demand models.
Many organizations experience higher periods of demand during certain points of the year, for instance. You’ll also need to consider how factors like weather, politics, and the economy affect demand and find ways to plan for it. Luckily, technology makes it easier than ever to accurately forecast demand.
Manage Your Lead Times
Your lead times can also make or break your inventory management during times of heavy demand. Long lead times can make it difficult for your company to pivot and adjust your inventory levels during periods of high demand. Unfortunately, there are many instances where lead times cannot be shortened. Understand the lead times for each of your suppliers and take them into account during the planning process to avoid unexpected delays.
Implement IoT Technology
Internet of Things (IoT) technology has made it much easier for organizations to automate their supply chain management, which helps to prevent stockouts. IoT technology allows organizations to place RFID sensors on their shipments to track them, so you’ll always know where your inventory is. You can even use IoT technology to automate replenishment to minimize the chances of a stockout.
Keep A Stockpile Of In-Demand Items
Having a small stockpile of extra inventory is one of the easiest ways to prevent stockouts, especially during unexpected weather events or other emergencies. Finding the right amount of safety stock for your organization may take some trial and error. You’ll need to have enough extra product on hand to prevent stockouts, but you also don’t want to have so much extra product that it negatively interferes with your warehouse space.
Work With Multiple Suppliers
If you’re worried about supplier-related stockouts, consider working with multiple suppliers or having a backup option. This ensures that even if one supplier is unavailable, you’ll still be able to keep your inventory levels stable. Consider choosing suppliers from different regions – this way, you can insulate yourself from problems that are specific to one geographic region.
If you’re struggling with stockouts, working with a 4PL provider like Unilog can help you get things under control. With IoT and other advanced technologies, we’ll help you take control of your inventory management to prevent you from running out of product.