Learn how a stockout can have a knock-on effect on your business and how to manage stockouts when they do occur.
Learn how a stockout can have a knock-on effect on your business and how to manage stockouts when they do occur.
In today’s fast-moving marketplace, supply shortages can be caused by any number of factors within the supply chain. A stockout, however, refers specifically to a product being unavailable at the point of retail (whether in-store or online). No matter where in the supply chain the shortage happens, the customer experience is the same.
Stockouts can occur when there are unexpected supply shortages due to foul weather, a backup at a major port, or a sudden spike in demand. While you as the merchant have very little control over these types supply chain interruptions, there are several other factors that you can control, such as:
The consequence of a stockout is a missed sales opportunity. This can be especially harmful to your business if the shopper is a first-time customer. In this case, you’ve not only lost a single sale, but you’ve lost the opportunity to acquire a new customer, and if your competitors have the same or similar products in stock, they now have an opportunity to gain more visibility and market share.
Ware2Go’s Director of Business Operations, Jimmy Mitchell, describes how stockouts can have a knock-on effect on operating costs and customer retention.
It’s important to consider the effects of stockouts on your business when vetting potential partners, both on the supply and manufacturing side and on the fulfillment side. Below we’ll outline 3 tips for managing stockouts and discuss how the right fulfillment partner with the right data and technology can help you be more strategic about your inventory planning.
Inventory visibility is primarily achieved through your Warehouse Management System (WMS), which should directly integrate with your shopping cart or Order Management System (OMS). A fully integrated WMS and OMS will give you real-time inventory data including:
Seeing this level of information about each sku and warehouse location will help you catch stockouts before they happen. When inventory reporting indicates that a stockout could be imminent at any location you have to decide what course of action to take. Ultimately, how you handle low inventory levels depends on your risk tolerance and product margin. The most likely solutions include:
Demand forecasting can sometimes feel out of reach for small to mid-sized businesses. The level of reporting and data analysis required to understand average demand against a product and how demand is affected by seasonality and promotional cycles is time and labor intensive. Often this type of reporting is an enterprise-level function, managed by a procurement specialist, but ultimately, businesses of all sizes need access to demand forecasting capabilities.
This is where a tech-enabled fulfillment provider can step in as a true partner for your business with data analysis that helps you make smart decisions around inventory management. Select providers offer inventory technology that leverages machine learning to automate the process of demand forecasting, giving you a full picture of:
Beyond automating complex processes, machine learning becomes smarter and more accurate over time. When leveraging this kind of fulfillment technology, your demand forecasting will become more accurate each season, increasing your level control over you inventory management and further decreasing your risk of stockouts.
This may seem counterintuitive. While stockouts do ultimately add up to lost opportunities, it’s important to know how the cost of a stockout compares to the cost of avoiding it. A deep level understanding of the true cost implications of a stockout start with visibility and the technology to automate data analysis. Good fulfillment data will help you understand:
At the end of the day, the cost of a stockout will be unique to your business and will even vary on a sku by sku basis. Having a fulfillment partner that prioritizes data and technology will help you become more strategic in your inventory management, balancing profitability with customer experience.
To learn more about how Ware2Go is helping merchants optimize their inventory management, talk to one of our in-house experts.