Out of stock: how to avoid it
July 31, 2024
July 31, 2024
Out of stock occurs when a business cannot fulfill an order due to an insufficient quantity of products or raw materials in its inventory. This situation has negative repercussions such as lost sales and damage to the company's reputation with customers.
An unexpected surge in demand for a product can quickly deplete available inventory.
This can happen in several situations: when a new brand is launched, the young company often has difficulty forecasting its sales volume. Also, during the holiday season, demand increases leading to massive purchases. This increase can quickly deplete available stocks and is therefore a challenge for businesses.
Out of stock can also be the result of problems in the supply chain. A failure at any level - whether at the producer, manufacturer, or carrier - can interrupt the flow of goods. For example, a delay in production at a supplier or logistical problems during transport can delay the arrival of products, preventing the company from meeting demand in a timely manner.
Inefficient inventory management by the merchant is another common cause of stockouts.
This may include poor demand estimates, inadequate tracking of inventory levels, or errors in inventory management systems.
For example, not anticipating a peak in activity or not restocking on time can quickly lead to a shortage of products available to customers.
The consequences of running out of stock can be particularly harmful for a business.
It can have several repercussions:
A loss of sales and revenue : Unavailable products lead to a direct drop in turnover.
Customer dissatisfaction : Unhappy customers may turn to competitors, reducing loyalty to your business.
Deterioration of brand image : Frequent breakdowns can damage a company's reputation.
Additional costs and logistical disruptions : Managing disruptions incurs additional costs and can disrupt the entire supply chain.
Anticipating customer demand and sales involves accurately forecasting the quantities of products that customers will buy in a given period of time.
Indeed, it is essential to use historical company reports in order to identify seasonal trends and peaks in demand.
In inventory management, a KPI (performance indicator) will make it possible to monitor the availability of stocks as well as the movements of each product. This data will help to make clear and informed decisions.
Here are a few of them:
Theoretical stock
Theoretical inventory is the quantity of inventory calculated based on planned records and transactions. It is an estimate based on the entries (receptions, productions) and the outputs (sales, consumption) recorded in the inventory management system.
It is used for scheduling And at the supply management. It is used to predict future needs and to ensure that stock levels are sufficient to meet demand.
The real stock
Actual stock is the physical quantity of stock indeed present in the warehouse or store. This is the quantity that can be verified by physical counting.
It is essential to ensure accurate inventory management. It allows check the correspondence with theoretical stock and to detect discrepancies due to input errors, losses, thefts, or damage.
But why is it important to compare them?
It is crucial to compare theoretical stock and real stock, for several reasons:
The breakage rate
In inventory management, the stock shortage rate measures the frequency To which a Product is out of stock On a fixed period. This indicator is essential for evaluating the effectiveness of inventory management and the company's ability to meet customer demand.
It is therefore a question of defining the optimal quantity of each product to keep in stock to avoid supply problems:
Formula: Out of stock = Number of orders not fulfilled due to out of stock/Total quantity of orders
A high shortage rate indicates problems with procurement, forecasting, or inventory management, while a low rate, on the other hand, reflects good management.
But be careful, it must therefore be borne in mind that products that have costly consequences in the event of a shortage require higher stocks.
Indeed, all products must be managed differently depending on their importance for the company! (See ABC method)
The order point or replenishment threshold
The order point is a pre-determined stock level from which a restocking order should be placed. It defines the minimum quantity to be expected for a product (alert stock).
It is calculated based on demand during the replenishment period and may include a safety margin.
The order point will indicate that an order must be placed immediately.
Formula: Order point = (Average demand during the restocking period) + (Safety stock)
The alert stock
Alert stock corresponds to the minimum stock level at which a replenishment order must be placed to prevent a stock shortage. It is therefore completely linked to the control point.
Formula: Alert stock = Minimum stock + safety stock
The safety stock
Safety stock is a strategic reserve of products maintained to prepare for unforeseen events such as sudden changes in demand or delays in the supply chain. This additional stock serves as protection against stockouts, thus ensuring sales continuity and customer satisfaction.
However, while safety stock helps to avoid revenue losses and maintain logistics flow, managing it wisely is crucial to avoid the excessive costs associated with overstocking. Indeed, the threshold of this safety stock must be well estimated to avoid shortages but also the opposite effect: dead stocks!
simple formula:
Safety stock = average sale x period covered by safety stock
average and maximum formula:
Safety stock = (maximum sale x maximum delay) — (average sale x average delay)
But what is the difference between alert stock and safety stock?
While safety stock is intended to manage unforeseen situations, the alert stock is used to signal when it is necessary to restock.
The level of the alert stock must obviously be higher than that of the safety stock, because they have different goals.
In summary:
As you know, unfortunately, it is not possible to control all actors in the supply chain, such as suppliers and their possible delays. It is therefore essential to maintain communication and a solid relationship with all actors in your supply chain.
However, it is entirely possible to control your stock management!
Indeed, it is essential to have good inventory software: because this computerized system will make it possible to monitor stock levels in real time thanks to the instant collection of data.
Software is therefore the most effective way to avoid stockouts and optimize warehouse management as much as possible!
Erplain offers various benefits for businesses: automating orders, reducing inventory management errors, sending real-time alerts to avoid stockouts, optimizing customer satisfaction through effective inventory management, and providing real-time analytics and reports for informed decisions.
Say goodbye to stockouts! Get your inventory valuation, monitor the inflow and outflow of products and keep track of your inventory.
