A stockout will often happen to retailers when they haven’t fully developed their inventory management processes. It simply means that an item has gone out of stock and a customer’s order cannot be fulfilled. Something or someone made a mistake while managing the inventory and the effects of it come with a significant cost to the company.
Stockout = A Bad Customer Experience
The effects of a stockout center around the customer experience. There are three main scenarios that may occur from it:
- Customer waits to receive the item.
- The item is out of stock with the vendor and placed on backorder.
- The customer leaves the store empty handed.
The first two scenarios describe how a stockout is an inconvenience to the customer. In today’s fast-paced retail environment, customers search for convenience and will quickly look for alternatives when they become inconvenienced.
The third scenario creates the biggest challenge to overcome, because the store has lost a sale and possibly a customer. The customer had a negative experience and will tell others through casual conversations or social media. When this happens, the retailer needs to give them a very good reason to come back, otherwise they have lost a customer to their competition.
How to Prevent Stockouts
It’s an inventory management problem that can be fixed. As with every process, these require an investment in time and resources. The following list describes how retail stockouts occur and how they can be prevented:
1. Inaccurate Data
Having inaccurate data is the reason why most stockouts occur. There are several ways inaccurate data can occur:
- Receiving goods from vendors
- Data entry
- Physical counts
- Theft
Each of these are preventable through organization and automation.
Cycle counts are an excellent way to get organized, because it takes a proactive approach to keeping inventory levels in check. This alerts managers to problems with inaccurate numbers due to shrinkage and theft.
Having a digital, cloud-based inventory management software and the latest in scanning equipment can save time and reduce errors while entering stock into the system. It also should be tied into the point of sale for accurate, real-time data.
2. Knowing When to Reorder
Timing is everything, so knowing when to reorder needs be data driven. It’s important to take a long look at historical sales reports to find the trends and spikes in demand. Much of this may be caused by seasonal fluctuations.
Following individual products and basing order rates on those alone is time intensive and can miss other opportunities. To improve forecasting, retailers should pay close attention to trends within product categories.
3. Vendor Relationships
Vendors hold the key to increasing margins and order fulfillment. The relationship between vendor and retailer is not as lopsided as it used to be. Today, they act more like partners, not suppliers.
Shipping costs and product availability can be negotiated. Another way to cut costs and reduce waste is to consolidate the number of vendors, focusing on a couple to build even stronger relationships that equate to lower costs.
4. Employee Training and Management
A lack of employee training and supervision will lead to errors during every step of the inventory management process—regardless of how advanced the system is. Quite often, little mistakes can get covered up by quick thinking employees, which lead to bigger problems.
Employees are the biggest resource for any business. That’s why it’s important to invest in training them. They need to understand how the system works, inside and out, and all of the procedures involved. They need to be aware of issues before they happen. A proactive employee will prevent errors and contribute to process improvements.
Empower the Inventory Management Process
These five tips do more than improve inventory management. They also empower the people and the process to be more proactive and less reactive. Reactive systems focus on the symptoms and not on the causes. A proactive system addresses the problems that lead to stockouts and prevents them from happening.