Does your business constantly fight stock-out and surplus? are one of the biggest threats to businesses. In fact, 42% of small to medium businesses report stock-outs as being their top concern. While one or two lost sales due to stock-outs may not be a huge concern, a lost customer has major consequences for businesses. Losing a customer can unintentionally strengthen your competitor. And gaining customers back after they’ve moved on can be a daunting task.
So what causes stock-outs to occur? The obvious answer is that the buyer didn't order enough inventory. But if the answer were that easy, stock-outs wouldn’t be such a big threat. There are a number of reasons that stock-outs can occur.
Stock-out Reasons
- Under estimating the demand and therefore not ordering enough stock.
- Late delivery from the supplier.
- Inaccurate lead times, or lead times that are shorter than the actual delivery time.
- Under ordering due to a substandard inventory management system or unfortunate business decision.
- Quality issues with the items ordered that causes a high return rate to the supplier.
- Supplier refusing to deliver for account payment issues.
- Shortage of working capital that prevents the ideal item quantity from being placed.
- Safety Stock level(s) are too low.
Proactive Approach
Especially during COVID, business owners should be proactive managing the causes of stock-outs. Preventing the problem before it occurs is the ultimate goal.
- Tools: An Inventory Management System with a dashboard that highlights potential stock-outs of currently stocked items. System should have a supplier order expediting feature that recognizes orders close to their expected delivery date.
- Team: Have a team dedicated to maintaining forecasts based on market conditions. The more accurate your forecasts, the better your will be able to predict possible stock-outs.
- Process: Low safety stock levels generally need to be addressed by management. Raising service levels will require an investment. Management will need to evaluate the trade off between fewer stock-outs and an investment in additional inventory. An inventory management system will calculate the additional investment in inventory required to meet desired service level objectives. If a potential stock-out is identified, place emergency orders with suppliers or accelerate current orders to keep these items from stocking-out.
Reactive Approach
Stock-outs can occur even with a highly proactive inventory management team. Unforeseen conditions like weather or natural disasters can cause items to fly off the shelf at an unexpectedly rapid rate. Here’s how to cope:
- Tools: An Inventory Management System with stock-out dashboards to identify existing stock-outs is imperative. And a timestamp tool showing when the stock-out occurred helps your team know how to prioritize and manage the stock-out.
- Team: Have a dedicated team member to deal with stock-outs, identify them and be accountable for resolving the issue.
- Process: If a stock-out is identified, place an emergency order or procure the item from a competitor. Rank items for the highest potential lost sales first so that they are properly prioritized.
To learn more about how can help with stock-out and surplus contact us. We are an integration friendly solution, and we add value to nearly every ERP and WMS on the market.
