Out of stock is also known as stockout. It is a circumstance in which the store does not have a specific product category on its shelf to offer to the consumer. It is possible to estimate it using store inventory data. More information may be found in: Customer Experience Impacting Retail Management: A Study of Retailers’ Customer Centricity Strategy.
They are also referred to as a stockout. It is a circumstance in which the store does not have a specific product category on its shelf to offer to the consumer. It is possible to estimate it using store inventory data. More information may be found at Omni-Channel Retailing: Improving Customers’ Shopping Experience.
They are also referred to as a stockout. It is a circumstance in which the store does not have a specific product category on its shelf to offer to the consumer. It is possible to estimate it using store inventory data. More information may be found at Customer Service: A Key Differentiator in Retailing.
A consumer enters their neighborhood supermarket seeking their favorite kombucha brand, only to discover that it is out of stock. Frustrated, this customer analyses her options:
- Select another brand, another shop.
- Postpone the purchase.
- Not buy the drink at all.
None of these possibilities are advantageous to the beverage manufacturer.
Out-of-stocks hurt sales, brand image, and future planning efforts. Suppliers should do all possible to prevent the feared stockout by planning ahead of time rather than reacting to it.
A Working Definition of Stockout
The phrase “stockout” refers to when a product’s inventory is depleted. The term is synonymous with out-of-stock (OOS).
Stockouts are when a product is unavailable for purchase at retail rather than elsewhere in the supply chain. They are apparent in the fast-paced consumer products industry.
The inverse of a stockout is an overstock, which occurs when an excess of goods occurs.
Recognizing the Scope of Stockouts
A stockout scenario is challenging for both suppliers and merchants for various reasons. The data below is based on thorough research on retail out-of-stock reduction in the FMCG business experts at the University of Colorado and IE Business School Madrid.
While these results are upsetting enough on their own, the figures on stockout expenses show how catastrophic OOS incidents can be for a company.
The losses connected with out-of-stock situations are significant. Lean businesses will want to know how a stockout affects their bottom line. Use our free stockout cost calculator to figure it out.
What Causes an “Out of Stock” Situation?
- A product stockout may be attributed to a variety of factors. The following is a list of avoidable reasons for stock shortages.
- A lack of working capital due to inadequate cash flow management on the retailer’s side restricts the value of monthly orders.
- An out-of-season increase in buying
- Incorrect inventory data due to shipping variations, lost merchandise, refunds, or stolen goods
- Inadequate demand forecasting due to a lack of data on the stock turn, sell-through, past sales, promotions, seasonality, and the economic condition.
- Inadequate staff training on how to check stock levels and replenishment
- Inefficient methods for replenishing shelves and making replenishment orders.
How to Avoid Stockouts
Fortunately, many underlying reasons for stockouts may be avoided using efficient procedures. Suppliers should improve their retail execution and supply chain procedures to reduce stockout risk. As a general guideline, organizations should strive to eradicate OOS for the 20% of goods that account for 80% of overall sales to affect the bottom line significantly.
Replenishment of the Shelf
Researchers linked 70-90 percent of stockouts to poor shelf replenishment techniques in a comprehensive analysis issued by Grocery Manufacturers of America. Merchandisers may address this by equipping themselves with mobile software to gather data on stock levels from numerous retail locations. Demand forecasting is aided by the reports produced from this data.
Merchandisers should monitor planogram compliance in addition to inventory levels. Products are put on shop shelves for a purpose, and when those placements are tampered with, stock levels might be thrown off.
Vendors might explore using a radio frequency identification (RFID) technology for more complex retail operations. Traditionally, this technology has been reserved for pallet tags once they have arrived at the retail site. The RFID application records when the cases are delivered to the shop’s backroom and when they travel from the backroom to the store floor and vice versa. RFID is being used at the individual product level by specific organizations to monitor items through a chip in the item’s packaging.
Optimization of the Supply Chain
Each moving portion of a supply chain must be optimized for optimal efficiency to reduce out-of-stock situations. Suppliers may collaborate with various partners, including manufacturers, distributors, and retailers, to get their goods from the manufacturing facility to the store shelf.
Here are some ideas on ways to address supply chain issues:
- Determine which SKUs are in high demand on a temporary and permanent basis so that producers are not rushing at the last minute to meet product demand.
- Modify delivery cycles based on past inventory data and seasonal swings to suit demand.
- Determine if distributors can carry more significant freight quantities if required. Determine if distributors can withstand the effect of many storms in a short period. If not, make plans to utilize alternative distributors who will not be impacted by poor weather.
“Sorry, we are out of stock,” no consumer likes to hear. OOS expenses hurt more than simply sales; brand value, store relationships, and investor confidence also suffer. Producers can dramatically decrease the negative effect of stockouts by investing in the appropriate technologies to improve retail execution, working with the best manufacturers and distributors, and correctly educating personnel.