Out of Stock: What It Is and How to Deal with It
Out of stock is one of the most annoying issues facing retailers and online store owners, which can frustrate customers and give them a bad shopping experience. In general, inventory management is critical to the success of a retail business, especially maintaining proper levels of inventory, so that stockouts, as well as overstocking, are avoided. Generally, a well-managed inventory will keep customers happy, boost sales and thus increase revenue. In this article, we will show you all the details about the problem of out of stock, as well as how to deal with it properly.
What is Out of Stock?
Out of stock means that certain items or products are not available at the point of purchase when the customer orders them.
Which negatively affects the customer experience, and even makes them abandon the shopping cart and go to your competitors.
What Triggers an Out of Stock Condition?
As we mentioned, the out of stock issue negatively affects the customer experience. And this problem may occur for many reasons, such as:
- An error during the inventory calculation.
- A very high demand for a particular item.
- Suppliers are late in providing the items.
- Not having the financial resources to provide an adequate amount of these items in your warehouse.
What are the costs of stockouts?
Out of stock costs retailers and online store owners a lot, especially since there are additional hidden costs due to this problem. Here are the most important costs related to stockouts:
1. Lost revenue
Which represents lost revenue, i.e. lost revenue as a result of the unavailability of products at the time of request, and thus the loss of its own profit.
Which may lead to the loss of customers in addition to other large losses in sales. And you can rely on the following mathematical formula to determine out-of-stock losses:
- Cost of stockout = [Number of Days Out of Stock*Average Units Sold Per Day*Price Per Unit or Profit Per Unit].
2. Frustrate customers and give them a bad experience
Customers get frustrated when they find the items they want to buy are out of stock, which makes them look for the product with your competitors.
3. Destroy your reputation and your brand
Stock outs affect how loyal customers are to you and your brand, thus negatively affecting your brand as well as harming your reputation in the market.
4. Increased operational costs
This is because you purchase the product that is sold out and ship it quickly, and therefore incur additional expenses for express delivery fees.
How to Reduce Out of Stock Conditions
There are many techniques to reduce out-of-stock situations, including controlling demand through pricing.
Also, having sufficient stockpiles for high-demand products, and dealing with additional suppliers can help reduce stockouts.
In the next paragraph, we will present a number of effective solutions and methods that help reduce and avoid the stockouts problem.
How can retailers avoid running out of stock?
There are several solutions that can help retailers and e-store owners proactively avoid stockouts.
Which helps in gaining customer satisfaction and avoiding costs related to the stockouts problem.
And the following are some of the most prominent of these solutions:
1. Predicting customer demands more accurately
Predicting customer demand more accurately can help you avoid this problem greatly.
And you can rely on performing ABC analysis to provide accurate forecasting about customer demand.
Taking into account the lead time between placing orders and receiving them, you can measure that lead time by examining previous purchase orders from specific suppliers.
2. Automation of stock replenishment processes
This is based on modern technologies and tools such as Radio Frequency Identification (RFID) technology.
Radio Frequency Identification (RFID) technology stores and tracks product information in order to maintain accurate inventory.
3. Control of demand through the use of pricing
The law of demand in economics generally states that the higher the price, the less the quantity demanded of those products.
And therefore you can control excess orders by raising the price of the product, and thus reducing the number of people who want to buy it.
But be sure to re-price appropriately, so as not to completely destroy the demand for this product and lose your customers.
4. Having backup suppliers
Having back-up suppliers can help you avoid this problem, who will help you in case of larger sales or sudden change in demand.
5. Improve your safety stock
It is one of the important things that must be taken into account with regard to avoiding the problem of running out of stock.
Which will serve as a reserve stock available for a specific item in the event of a sudden increase in demand for it.
How do shoppers react to out of stock?
In fact, customers deal with the stockouts problem very negatively, and this is mainly because this problem makes them very frustrated.
Customers tend to avoid dealing with the store again and lose confidence in it, or go towards competing customers and deal with them.
