Stockouts may be quite frustrating for customers, but they show signs of high inventory turnover for companies. This also shows that they were successful in selling all the stock which is the eventual endpoint of production of goods.
While this may be good for businesses in the short run, in the long run, Stockouts can be harmful since each time an item is out of stock and a customer is interested in purchasing it, it can result in the loss of potential sales. This is because unless consumers are extremely loyal to the brand, they will quickly look for alternatives and may end up purchasing the same product from a competitor.
Furthermore, if a customer sees that an item has not been in stock for quite some time, they may become frustrated with the brand and altogether choose to switch to another one. This can tarnish a company’s reputation and it may be labeled as an incompetent one for not paying any heed to its inventory and the demands of its customers.
Loyalty cannot be upheld for an extremely long time since at the end of the day, consumers have their own needs and may look for a brand that is more in line with their interests and respects their demands. This way, the waiting time for customers decreases and they are more satisfied with the services of competitors.
If stockouts are frequent, this indicates that the business is not too good at managing its inventory. If customers are desperate to get their hands on a product that has been out of stock for quite some time, they will place a backorder, which will be more expensive especially because suppliers are aware of the situation and tend to exploit it.
This adds to operational costs since businesses will go out of their way to ensure that their inventory is at an optimum level. Supply chain management is a very intricate process and requires a lot of planning since every step of the chain is crucial and must be completed within a certain timeline.
To avoid stockouts, businesses can take multiple measures to ensure that they are still able to cater to customer demands.
Demand Forecasting
Forecasting is done by taking historical data into account and monitoring trends to see what factors favor the demand and how businesses can capitalize on those factors without losing their inventory to stockouts.
Monitoring trends helps businesses to predict what trends in the future will look like and they can stock up accordingly so that they do not run out too quickly nor do they have leftover stock which is then difficult to get rid of. They can use advanced forecasting methods such as machine learning algorithms or statistical software so that they can come up with the right number of items they should keep in stock.
Safety Stock
Safety stock is a great way for companies to ensure that stockouts are not too prolonged and customers do not have to wait a very long time for their desired products to be back in stock. This stock then acts as a buffer between the original stock and the delay that is caused by the stock out of the original inventory.
It is a good way of pacifying some customers for the time being and prevents businesses from losing shelf space in retail stores. It also leaves a good impression on customers as the wait will not be too long. Businesses that sell their products online can also mention the number of products left so customers can plan their purchases accordingly.
Inventory Monitoring
Inventory monitoring can be done very easily through inventory software since this kind of software can identify selling patterns, keep track of stock levels, and send out alerts when stocks are low. This software can also make the process of reordering easier by automating it.
The software also calculates the safety stock level to ensure that the inventory is replenished before stock levels are critically low. This again helps save time and inventory managers do not have to rely on their memory and calculations since the software would automatically do that for them.
Supplier Relationships
In a supply chain, suppliers have a hold on businesses since they know that without them supplying the raw material or the packaging material, businesses are essentially helpless and cannot proceed with their operations since they need these items for their manufacturing process quite urgently.
A single order gone wrong can have such a huge impact on the production and sales of a business which is why companies should never risk it when it comes to suppliers. For this reason, it can be very helpful to form a close relationship with suppliers even if it means communicating with them on a personal level. Suppliers can cut businesses some slack and provide them with the material they need without charging them extra for it.
JIT Inventory System
The Just in Time inventory management system is the perfect way for businesses to ensure that they receive their material from suppliers on time and can meet customer demand without having excess inventory to deal with while also ensuring that products are available to customers in quantities they need.
This system also reduces carrying costs, which are the costs of holding inventory. Reducing excess costs while meeting customer demand is the most ideal situation businesses can be in. This approach is driven by customer demand and aims to reduce waste, improve customer service, and boost efficiency.
Conclusion:
Stockouts do more harm than good for businesses since customers do not have a lot of patience and most of them are not as loyal to their brands.
They look for convenience and switch to competitors that offer the same brand to them without the hassle of waiting for long times.
Many people are under the impression that stockouts show good inventory management, but this is not the case if there is a huge demand for the goods that are out of stock. For this reason, businesses should try their best to ensure that they manage their inventory efficiently to appeal to their customers.
