What is a stockout?
A stockout happens when a company receives an order but doesn’t have enough of a given product on hand. In other words, it doesn’t have the products its customers have asked for.
Because the sale never goes through, it can have disastrous consequences if you sell across several channels and face multiple stockouts you never planned for. For many people, the definition of a stockout also means holding less inventory in the warehouse than the minimum stock level you should have.
For example, if your minimum stock for white t-shirts is 10 units and you only have 7, many retailers would also call that a stockout.
Stockout rate
To measure your stockout rate, you can use a simple formula:
Rate = (Unfilled orders / Total orders) * 100
This gives you a percentage showing your stockout rate and how much room you have to improve.
Causes of stockouts
- An unexpected spike in demand: If one of your products suddenly becomes trendy, you won’t have time to keep up with the demand your customers are placing.
- Poor planning and inventory management: If you don’t accurately calculate the stock you’ll need throughout the season, and you don’t have a way to track which products to restock, that’s when a stockout can happen.
- Lack of communication between the sales and purchasing departments: When departments don’t talk to each other, any last-minute issue or urgent need to restock or buy materials never gets handled. When it’s time to deliver the product to the customer and you don’t have it, you’re in a stockout.
- Problems with suppliers: If you’re not paying attention and don’t track where your products are and when they’ll arrive, a missing raw material will slow down your entire production process. The same goes for delays in raw-material deliveries or transport incidents.
- Lack of management software: Without stock management software, the chances of human error somewhere in the supply chain are extremely high. If you manage several sales channels, the software automates processes for you. You’ll save time on management and, among many other things, avoid stockouts.
Consequences of stockouts
The consequences of a stockout are very subjective, since every business will have more or fewer costs tied to its inventory. The consequences that affect every retailer to a greater or lesser degree are:
- Higher logistics costs. The more inventory you hold, the higher the costs.
- Lost sales and unhappy customers. If you don’t have the product in stock, you can’t make the sale. You’ll have to manage returns, receipts or credit notes, and apologize to a customer who is left dissatisfied after wanting to buy a product you don’t have in stock.
- Damage to the company’s image. Every business can suffer a stockout at some point, but it hurts the company’s image. Stocking up so that the products are available when the customer comes in is essential for the sales activity of any business.
- Loss of reliability and credibility. In the eyes of the public, stockouts are a sign that something is wrong with the business. We all know we live in a very competitive world, and your customers will quickly go to the competition next door.
- Internal clashes and arguments. If the departments within your company don’t communicate well and you end up in a stockout, it can cause arguments between departments and with suppliers that you want to avoid at all costs.
And how can I avoid running out of stock**?**
To avoid finding yourself in this situation, you need to plan your season properly, based on your order history from previous years or an estimate of past sales.
Set a minimum stock level for each product. The minimum, or safety, stock is the smallest quantity you’ll always keep in the warehouse. If you get an unexpected surge in sales or any situation that would otherwise lead to a stockout, you’d avoid it.
Coordination across the whole team and communication between departments. It may sound obvious, but running team-building activities and cultivating trust, respect and communication across the team is essential so everyone pulls in the same direction and no slip-ups happen.
When it comes to suppliers, it’s important to build a good relationship with them and try to earn their loyalty so they let you know about any issue right away. It’s just as important to choose suppliers who can meet your company’s needs and who have solid professional backing.
- Working with stock management tools helps enormously in keeping your business under control. You’ll have a record of stock movements between warehouses, stores, showrooms and more. You’ll know how much of each product you have at any given moment, and you’ll be able to set safety stock levels so you know when it’s time to restock.
- With management software like Stockagile, you get an analytics section that helps you make more accurate purchases, since you’ll have historical data from previous years.
- You’ll know when you placed orders with your suppliers, when the materials will be delivered, plus payment tracking and more.
