Tips to Identify and Reduce Stock-OutsAvoid stock-outs, and the downturn in sales that follow, by identifying them early and being proactive.
We live in a world where anything you need can be accessed at the click of a button. As a result, suppliers need to ensure that they have the right levels of stock, at the right time, ready to be shipped. If you are a supplier, what does this mean for you? Well, one thing is for certain – you need to avoid stock-outs as much as possible. Your customers will turn to your competitors to get their products, and with a good experience, they may never return.
It is important to understand why stock-outs occur. Once you can define those, you can put policies and processes in place that help to prevent these from occurring.
Let us look at some of the primary reasons that companies experience stock-outs:
- Underordering inventory due to underestimating the demand
- Underordering due to poor decision making. Not having data insights such as forecast and lead time data, planned replenishment cycles, and safety stock leaves the buyer with very little to go on other than gut feel.
- You ordered enough quantity, but your supplier did not deliver or only delivered a part of the order.
- Using the incorrect lead time. If your supplier’s lead time is wrong and your delivery arrives later than planned, your re-order level should be lower.
- A safety stock level that is too low to cover the risk profile of an item
- Product quality issues which result in stock returns
- The supplier is refusing to deliver due to a credit hold on your account from non-payment on your behalf.
- A shortage of cash may limit the number of orders that can be placed each month. This could be caused by poor cash flow or other inventory issues such as too much cash tied up in excess inventory.
Dealing with the problem in the real world
The reality is that every business will suffer from stock-outs at some point. With that in mind, it is important to focus on how to reduce the frequency of stock-outs. Below are some fundamental principles that will enable you to do that:
- A stock-out dashboard that identifies existing stock-outs. This allows management to resolve a stock-out effectively and timeously.
- Communicate with your customer. The first step in a stock-out situation is to advise your customer and let them know how you intend to resolve the problem.
- Look at sourcing the items from another branch or placing an emergency order with your or another supplier. A last-resort option is to buy the item from a competitor.
- Appoint a person in the business to manage and resolve stock-outs. They need to be made aware that stock-outs are a top priority.
- The stock-out process will be more effective if you rank by the highest potential lost sales so that these customers receive attention first. This enables the maximum benefit to be derived with the least effort in the least time.
- A date stamp that identifies when the stock-out occurred assists in prioritization and management.
Be proactive – solve the issues before they become a problem.
- A high level stockout dashboard can predict when an in-stock item will stock-out before the next order is received. This data gives you the time needed to rectify the situation BEFORE it becomes a stock-out problem.
- Placing emergency orders or expediting existing orders is required to prevent these items from stocking out.
- Forecast variance management. The potential stock-out dashboard and other calculations are only as good as the forecasts. Therefore, forecasts must be re-aligned to the real market demand as soon as any changes are identified.
- A supplier order expediting system that identifies orders close to their expected delivery date and most definitely identifies overdue items.
The best way to ensure that you stay on top of stock-outs is to invest in a proper inventory management solution – like NETSTOCK. Trying to manage your inventory in a spreadsheet is time-intensive, and you won’t get the same results that you would from a fit for purpose solution. It’s important to weigh up the cost and reputational damage as a result of stock-outs versus investing in an inventory management solution which helps with stock-outs AND helps you minimize your excess stock by placing smarter orders. This all goes to ensuring that you have the right products in the right locations at the right time – every time!