Suppliers need to be able to ship and sell their stock quickly and efficiently to keep up with the speed of modern business. If you are a supplier, what does this mean for you? Well, one thing is for certain – you need to maintain a consistently stocked warehouse and 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.
Understanding the root cause of stock-outs leads to the development of policies that help to prevent them.
Let us look at some of the primary reasons that companies experience stock-outs:
- Unexpectedly large demand for your underordered inventory.
- Ordering based on gut feel. This is just as likely to cause over or underordering. Having data based insights such as forecast and lead time data, planned replenishment cycles, and safety stock makes your ordering process much more robust.
- Issues with supplier delivery.
- Using the incorrect lead time. If your supplier's lead time is wrong and your delivery arrives later than planned, then you will likely run out of stock before the refill arrives.
- A safety stock level that is too low to cover the risk profile of an item.
- Stock returns from quality issues will affect your stock numbers without generating sales.
- 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
Every business will, at some stage, suffer from stocking-out. Customer buying patterns can be inconsistent, and your supplier may face delays with shipping stock. The important thing is to reduce the frequencies of stock-outs to minimise the impact on your business.
Below are some fundamental principles that will enable you to do that:
- 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.
- Identify the customers that have the highest potential loss in sales, and attend to them first.
- A stock-out dashboard that identifies existing stock-outs. This allows management to resolve any stock-outs in an efficient and timely manner.
- Look at sourcing the items from another branch or placing an emergency order. A last-resort option is to buy the item from a competitor.
- Designate a person to manage stock-outs, understanding that resolving them should be your highest priority.
- Prioritise and manage different stock-outs based on the date of occurrence
Be proactive – solve the issues before they become a problem
- A high-level stock-out 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.
- A focus on your pending orders with suppliers, to identify orders close to their expected delivery and those which are already overdue.
- 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.
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 minimise 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!
If inventory stock-outs is one of your inventory challenges, attend NETSTOCK’s webinar on 24 November 2020 and learn how to Optimise Inventory Policy to Boost Sales, Reduce Investment and Improve Planning Efficiency.
If you'd like more information about Inventory Management Software, stock-outs or NETSTOCK, please email us.