Navigating Stockouts: Understanding Causes and Implementing Solutions

Stockouts can have a large impact on your sales and revenue. In this blog, we will be navigating the problems that arise when stockouts happen and proactive ways to avoid these issues.

Stockouts can be a real headache for businesses, regardless of their size. When a business runs out of products, they miss out on sales, leave customers dissatisfied, and potentially lose reputation. Let this article serve as a reference sheet on why stockouts happen, the impact they have on your business, and effective strategies for preventing them. 

What is a Stockout?

First, it is important to know what a stockout is. A stockout is when a business no longer has a particular product on the shelves. Simple right? While stockouts are by no means rare. They do negatively affect a business's customer and supplier/manufacturer relationships.

It's like going to a world-renowned steak house and then learning they are out of steak. A bit disappointing and a waste of a trip. Often resulting in customers seeking a competitor to purchase the product from. Now, the business is stuck with no products to meet demand and lost profits associated with the product. 

Causes of Inventory Shortages

Now, inventory stockouts can happen for several reasons. One of the most common causes is poor demand forecasting. This means the business underestimates the demand for a specific product and may not have sourced enough inventory to meet customer needs. It is like going on a hike and not bringing enough water. Because of the initial underestimation, you and the business are underprepared and now face issues related to that decision. 

Another reason is there was a disruption in the supply chain. These are issues ranging from delayed shipments and manufacturing problems to supplier shortages that can lead to a lack of available inventory. Additionally, inaccurate inventory tracking or poor inventory management practices can result in stockouts. 

However, forecasting and supplier issues aren't the only hurdles a business has to contend with. It is also crucial to be aware of market trends and world events. These external factors can also trigger inventory stockouts. 

A great example is when a trend gains traction on social media, and the product being used becomes all anyone wants. Think Squashmellows in 2020 or Stanly Tumblers in the beginning of 2024. While unexpected events and sudden surges in demand are difficult to predict, let alone prepare for, it is good practice to stay informed and up to date to recognize potential stockouts that may arise in your inventory. 

Consequences of Stockouts

Stockouts can be like a rock in a stream, obstructing the flow of a business's operations. When a product is out of stock, it can create a ripple effect that disrupts the entire supply chain, much like how a rock can cause a disturbance in the water's flow.

The impact of stockouts can appear to be just small inconveniences that can be fixed later. But in reality, it can lead to larger consequences. A single stockout can result in lost sales revenue, which can snowball into long-term customer loyalty issues and a tarnished reputation. Especially when dealing with products that are high-value or very niche. 

Depending on how a business sells its products, stockouts can cause a chain reaction that affects other products that rely on it for bundling or cross-selling. Not only can this lead to inefficient product planning and distribution, but it can also increase costs related to holding products and cause delays.

Preventive Measures

Preventing stockouts is like navigating a ship in a stormy sea - it requires careful planning, constant monitoring, and the ability to adapt to changing conditions. Fortunately, there are several strategies businesses can employ to stay afloat and mitigate the negative effects of stockouts.

Enhanced Demand Forecasting

The first effective approach is to improve demand forecasting. By analyzing historical sales data, market trends, and social media and using advanced forecasting techniques, businesses can more accurately predict customer behavior and adjust their inventory levels accordingly, helping them steer clear of stockouts. 

Strengthening Supplier Relationships

Another strategy is to establish strong working relationships with suppliers. Maintaining open lines of communication is like building a bridge over turbulent waters. By actively collaborating with suppliers, businesses can mitigate supply chain disruptions and ensure a steady flow of inventory. This can be particularly important when doing business overseas. 

Utilizing Real-Time Inventory Tracking

Automation has come a long way in the past few years, so implementing a tool that offers real-time inventory tracking systems like Genie isn’t just good to have, it’s necessary. With a combination of efficient inventory management practices and Genie, businesses can all but guarantee there will be no stockouts. With the ability to offer live updates on stock, how long until the product is out, and streamlined product ordering processes, Genie ensures businesses are always aware of how much stock they have on hand. Allowing them to not only stay ahead of stockouts but to quickly and effectively identify how much and when they need to order more. 

Diversifying Supplier Networks

Finally, businesses can expand their network of suppliers and explore alternative sourcing options. This can help protect against supply chain issues that may arise and reduce reliance on a singular supplier. It’s like the old saying, don’t put all your eggs in one basket. The same would be true here. This makes it less likely a business will experience stockouts due to issues out of their control. 

Ultimately, preventing stockouts requires proactive planning, accurate forecasting, robust supply chain management, and continuous monitoring of inventory levels. While these strategies are not going to be magical solutions to all stockout issues, they can, at the very least, minimize the occurrence of stockouts and assist in maintaining operational efficiency.

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