Stockout
What is a Stockout?
A stockout occurs when a business runs out of a particular item or product, leading to its temporary unavailability for sale or distribution. It denotes a situation where customer demand exceeds available inventory, resulting in potential lost sales and customer dissatisfaction.
Common Causes of Stockouts
Stockouts can be caused by various factors within supply chain and inventory management:
- Poor Demand Forecasting: Inaccurate predictions of customer demand can lead to understocking.
- Supplier Issues: Delays or disruptions in the supply chain, such as late deliveries or quality issues from suppliers.
- Unexpected Demand Spikes: Sudden increases in demand due to seasonal trends, promotions, or unforeseen market conditions.
- Inventory Management Errors: Inefficient inventory replenishment practices, including improper stock levels or delays in reordering.
How to Calculate Lost Sales Due to Stockouts
To estimate lost sales from stockouts, first calculate average sales per day in periods before and after the stockout for impacted SKUs. Once this is done you can compare against average sales during stockout periods to determine lost sales.
How to Avoid Stockouts
Preventing stockouts requires proactive inventory management strategies:
- Implement Effective Demand Forecasting: Use historical data, market trends, and predictive analytics to forecast demand accurately.
- Safety Stock: Maintain safety stock levels to buffer against unexpected demand fluctuations or supply chain disruptions.
- Supplier Relationship Management: Build strong relationships with suppliers to ensure reliable and timely deliveries.
- Inventory Monitoring: Utilize inventory management systems to track stock levels in real-time and set automated reorder points.
- Continuous Improvement: Regularly review and adjust inventory policies and procedures based on performance metrics and market changes.
By employing these strategies, businesses can minimize the risk of stockouts, optimize inventory levels, and enhance customer satisfaction by consistently meeting demand expectations.
Backorder vs. stockout
A backorder occurs when a customer places an order for an item that is temporarily out of stock but will be replenished soon. In contrast, a stockout implies that the item is completely unavailable at the time of demand, with no immediate expectation of replenishment.
Stockouts vs. overstock
While a stockout is characterized by a shortage of inventory leading to unmet customer demand, overstock refers to excess inventory levels beyond what is necessary to meet current demand. Overstock can tie up capital and warehouse space, leading to potential losses if items become obsolete or must be sold at a discount.