Nowadays, the industry of retail has thrived in ways we never thought of happening. The product or service purchase can take place through various distribution outlets, including online, in a physical store, through direct sales, or direct mail. Having these options, shopping is made convenient for our customers but also entails additional workload for retail companies.
Ideally, we all want our favorite products and services to be readily available for purchase. Unfortunately, that’s not always the case, whether we shop in-store or online.
Imagine this: all supermarkets are all out of toilet paper rolls. It means the demand went so high that it resulted in the unavailability of the product. But what if all the shops in the area are fully stocked with the different brands and types of toilet paper and your shop doesn’t have it?
Managing and keeping your inventory to an optimal level is easier said than done. If you stock too much, you risk raising your costs; but you risk completely running out of a product if you stock too little. It's not a simple task to achieve the ideal balance. We understand that you’re not here to learn the stock outs definition; you already know that. You’re here to know why it happened and how to avoid and manage it properly.
Stockouts in a nutshell
So what are stockouts? They are simply defined as an occurrence of unavailable specific items or products which a customer is ready to buy. They are also known as out of stock. Your company will likely run out of stock on a frequently ordered item at some time. This is particularly true if your company is thriving.
Customers are not only disappointed and frustrated when there is a stock out. They can also result in missed opportunities to reach customers, lost sales and profit, and possible brand harm.
Consider a customer looking for a product you offer. She types in a search term on Google sees your e-commerce site listed in the results and clicks through. She's prepared to make a purchase. You're not ready to sell, though.
This could be particularly irritating if the outage was not immediately communicated on the product description page. Perhaps she chose a size, a color, or a quantity. And it was only then that she noticed your product was not available.
Stockouts, on the other hand, are a major problem. This basic reality can not be overstated. Running out of inventory has a variety of adverse effects and causes, which we will discuss below.
What causes a product's out of stock status?
While stockouts are likely to cause customer dissatisfaction and lost sales, there are a variety of circumstances that can lead to stockouts in the first place.
1. Delayed delivery
A single late delivery can throw everything off. Both the manufacturer and the retailer lost out on sales opportunities because they were not available or in front of consumers. It also affects decisions on what to do with late-delivered stock, how it can affect future orders and stock levels, and also how a customer's view of a brand may be influenced.
Perhaps there was an error or a miscalculation that resulted in the late delivery. Perhaps the delivery was postponed due to an unexpected situation. It's also likely that the retailer just placed the order too late. Regardless of the reason, each scenario results in a stockout at precisely the wrong time.
2. Under ordering
It is considered a communication and visibility problem. Without a precise, comprehensive order history, estimating how much of each product to order or when to order can be difficult. Worse, many companies cannot effectively convey this data and knowledge to the decision-makers that need it. Because of the interaction and visibility gap, ordering becomes more of a guessing game, which can lead to stockouts.
3. Inaccurate Inventory
Data is only useful if it is accurate. This is especially true in inventory management, where even the tiniest data error or failure can result in major issues. Human errors, such as incorrect inventory entry, a missed keystroke, or an incorrect scan, can cause stock outs.
Occasionally, the issue is far more basic. Although marketing may be advertising or promoting a new product, sales representatives may be unaware of these activities and fail to order enough inventory to satisfy the growing demands.
Any mistake in inventory management, regardless of the cause, will confuse the ordering process, masking real demand and undermining your role as a retailer. Several factors such as human error, technical issues, loss of product due to damage or theft, and a combination of the mentioned can be accounted for as causes of discrepancy in product inventory—results in stock-outs. Out of stock website items are as bad as seeing big gaps in shelf spaces, both are damaging—to the company and customer.
What consequences can a company face due to stockouts?
- Orders will be canceled by some customers: Some customers may cancel their orders if you are out of stock, or you may not be able to fulfill them at all. Your company loses money as a result of this, often even to a rival.
- Customers will have to wait until they can make an order: Customers cannot purchase the item when they want it, which is one of the most noticeable implications of a stockout. As a consequence, some customers might try to recall to come back at a later time. Some customers will sign up for alerts to be notified when an item returns to stock. Otherwise, it is entirely the client's responsibility to remember.
- Customers may never return: Customers may never visit you again if they discover you don't have an item in stock. This usually occurs when new customers come into your store (physical or online) and you are out of stock. In other instances, existing customers will simply decide that they have had enough and will not return.
- Profit Loss: Your business will lose money in the process. For a lot of small businesses, losing a few weeks of sales will mean the difference between success and failure.
- You can get negative feedback: Aside from losing profit, customers will leave unfavorable feedback if a company has a poor experience. Customers can get upset if you run out of stock, and may write negative reviews online as a result.
Doing it right, and doing it better
So how can you proactively manage your inventory stockout? Retailers can easily react defensively to stockouts rather than being proactive in solving the problem and preventing them. Retailers can avoid running out of stock and keep their customers satisfied with a little forethought and the right equipment.
- Lead Time matters.
Your lead time is the time between your purchase order and the supplier's actual delivery date--and that’s crucial. The main aim of your inventory is to cover your suppliers' lead times. Your goal is to reduce lead times as much as possible to satisfy the customer demand and reduce the time between paying for stock and earning revenue. Thus, keep track of your inventory's stock levels and prevent stock-outs.
- Forecasting of demands.
Forecasting demand is just as important as having safety stock in your inventory because it allows retailers to plan ahead of time how much and when to order. You can also use reporting and analytics software to figure out how much stock you have. As a result, you can schedule your stock replenishment period accordingly to avoid running out of stock.
Through analyzing your sales history, current order quantities, and on-hand quantities, you will calculate the reorder point using demand forecasting.
- Inventory management tools can help you automate activities.
easily track your orders
Image is taken from Strikingly product
The picture above shows how easy it is to monitor your orders, the days of keeping track of an inventory manually are long gone. Other than avoiding out of stock situations, the inventory automation method has many advantages. Here are a few of them: It improves inventory quality and productivity, saves time and resources, and decreases human error by scalability.
- Solve challenges in logistics.
While retailers can only have so much control over how and when their products are delivered, retailers can use a few best practices to reduce the likelihood of stockouts due to logistical issues. Retailers who are worried about being out of stock due to shipping issues should consider partnering with a logistics company that provides advanced shipping alerts (ASN). Retailers are informed when shipments exit a warehouse or fulfillment center and given an approximate arrival time.
- Maximizing pre order.
Having a pre order option will reduce your customers and revenue's loss of interest. A pre order is a purchase made for a product that has not yet been available or is out of stock. Pre orders enable your customers to reserve an item from your store before it becomes available. Suppliers and retailers are realizing the value of accepting pre-orders online because they provide a fair indication of demand and an assured amount of sales.
The good news is, there are website builders that have a pre order feature, and Strikingly is the best one in the market. You can quickly set up pre-orders for your items and then collect payments for those that can't be delivered right away. Maximizing a pre order option is a proactive way in dealing with your stockout dilemmas by allowing your customers to purchase an item whether it be out of stock or in transit for warehouse shipment.
Utilize an e-commerce website to prevent out of stocks
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Here in Strikingly, we pride ourselves on having great value for your money, providing excellent customer support, and are cheaper premium rates than other website builders.
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Customers would be happier with better inventory management.
Customers aren't the only ones that are affected when there are stockouts. They also imply that chances have been passed up. When famous products are out of stock, retailers essentially throw money away and encourage customers to buy elsewhere.
Although it's almost impossible to avoid the possibility of stockouts fully, retailers should take a more proactive strategy to manage inventory to minimize the likelihood of out of stock significantly.
You will get a much better idea of how much you need to stock by keeping tabs on your inventory and using the above strategies to reduce stock levels and prevent stock outs.
Have any questions? Chat with us, and we'll work together to find the best solutions.