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What is a Stockout and How Do You Prevent Them?

An inventory stockout – as an online shopper, one of the most frustrating things to experience is discovering a product you want to purchase only to find out that it’s out of stock. For customers, it’s a huge letdown and could cause lead to them abandoning their cart entirely. For businesses with a poor inventory management system, it causes lost sales, lost customers and missed revenue.

When online shoppers land on an eCommerce site or platform, they’re looking for a product that they can purchase and receive right away. By keeping enough inventory in stock to sell products, your online store can capitalize on conversion opportunities right away. If your merchandise is constantly out of stock, you risk causing significant damage not only to your sales and bottom line but to your brand, too.

If you’re not sure what a stockout is, what causes them and how to stay ahead, here’s Cantec’s guide to treating and preventing stockouts from happening to keep your business growing.

What is a Stockout?

what is a stockout

A stockout is an inventory management event where one or multiple inventory items are unavailable for purchase and fulfillment. Businesses can fault stockout events for brick-and-mortar stores towards supply chain delays or poor inventory control. However, stockout events for online stores have a much more significant effect on a customer’s satisfaction level, especially if there is no estimated date for when an item will be back in stock for purchase.

What Can Cause a Stockout? 5 Stockout Causes

stockout causes

Stockouts can happen for a variety of reasons. Some are out of a business’s control, while others can be related to a company’s production process or supply chain management. Here are a few examples.

Poor Cash Flow Management

If a business doesn’t have the funds or working capital to purchase new inventory to keep up with customer demand, it might be forced to sell other merchandise before procuring new stock. A retail location might be more suspect to this kind of stockout event since brick-and-mortar retail relies heavily on foot traffic, seasonal shopping trends and potential tourists to maintain their sales.

Human Error

Sometimes, simple mistakes such as misreading historical sales data or tracking incorrect reorder points can significantly reduce in-demand products’ stock levels. Usually, partnering with a third-party logistics (3PL) and delivery provider can help a business stay on top of its inventory levels.

Poor Inventory Management

Excellent supply chain and inventory management will look at historical inventory data, inventory trends and inventory move rates to correctly forecast and predict when specific products will sell out of stock. Routinely checking inventory counts, investing in safety stock, and keeping in close contact with supply chains can help a business avoid stockout events and help reduce a business’s inventory carrying costs, warehousing fees, and dead stock levels.

Supply Chain Delays

Several factors can lead to supply chain delays. Freak weather events, geopolitical strife and a shortage in raw materials can all hurt inventory levels.

Demand Fluctuations

Cyclical shopping patterns, holiday season, and social media trends can lead to unpredictable demand increases that go beyond inventory data.

How a Stockout Can Affect Your Business

stockout effects

In addition to negatively affecting your bottom line by not having inventory available for customers to purchase, a stockout event will also have a negative effect on customer satisfaction. If a customer lands on your eCommerce website through an organic search, browses your products and finds one they’re interested in buying only to find out it’s unavailable, the experience is likely to lead to frustration and a negative view of your brand and business as a whole. Here are a few more ways a stockout can negatively affect your business.

Losing Customers

Acquiring a new customer is five to 25 times more expensive than retaining an existing one. If your eCommerce business doesn’t have stock available for a customer to purchase, they’re likely to visit a different website that has that item in stock instead. Once they make that transition, they might just continue to buy from your competition instead of coming back to your store.

Cancelled Orders Costs

Customers won’t be able to purchase an item if it’s listed as out of stock online. Still, if a customer makes a purchase and finds out after the fact that an item isn’t available, you’ll not only have to refund the purchase, but you’ll also have to break the bad news to them.

Businesses need to view inventory counts in real-time to maintain a pulse on how much inventory they have on hand. If currently available inventory levels aren’t accurate, the number of cancelled orders can compound and lead to more and more refunds and negative customer experiences.

Poor Reviews

When you’re doing business online, reviews can make or break your business. Consider the fact that many customers won’t be able to see, touch or feel your products in person – they’ll have to rely on online reviews and testimonials to gauge whether or not your business is worth the risk to engage with. You won’t need a plethora of negative reviews for you to shut down; one negative experience is all it takes to sow doubt mistrust in your business.

How to Avoid a Stockout

how to prevent a stockout

As we’ve illustrated above, preventing a stockout scenario is essential for online businesses and direct-to-consumer brands. In today’s digital-first world, customers can find hundreds of alternatives in seconds and won’t hesitate to make the switch. With that being said, here are three ways you can prevent a stockout from happening.

Invest in Safety Stock

Safety stock is extra stock prepared to deal with sudden demand fluctuations, supply chain failures and other unforeseen inventory emergencies. Safety stock can be used to prevent stockouts by replenishing stock that has been depleted by a certain quantity. Visit our guide on safety stock to find out how you can determine the right amount of inventory for each SKU level.

Forecast Demand

Determining how much of a certain product or SKU to order is difficult. While historical inventory data and sales trends can help give you an idea of how large of a production order to put in, you won’t be able to determine exactly how much to order and produce. Just like forecasting the weather, forecasting demand can be unpredictable, but it’ll give you an idea of what to expect at the very least.

Invest in Stock Management Tools

Supply Chain Specialists and Inventory Managers are critical for keeping supply chains running smoothly and properly. Still, many SMEs and smaller businesses won’t have the capital to fill roles, which is where stock management tools come in.

With the right tools, any business can stay ahead of the curve by forecasting demand, predicting inventory move rates and automatically maintaining safety stock. Investing in inventory management software or partnering with a 3PL like Cantec Couriers that can help you automate your order processing, provide multiple fulfillment options and facilitate same-day delivery.

Key Takeaways

Preventing a stockout situation is critical if you want to stay competitive within the eCommerce space. While supply chains and demand forecasting aren’t always reliable, investing in safety stock and the right inventory management tools can be the difference between meeting your customers’ expectations or driving them towards the competition.