I never thought I would have to worry about stock outs. But then, one day, I was caught unprepared. It was a disaster. Thankfully, I learned my lesson and now I always make sure to keep a close eye on my inventory levels. And if you’re worried about stock outs too, then you’re in luck. Learn how to avoid stock outs in your business.

What causes stockouts?

Before we learn how to avoid stock outs, lets understand what causes them first.

There are many reasons why stockouts are so common. For example, you may underestimate how much product your customers need, or a major delay from one of your suppliers may leave you without enough of what you need.

Stockouts are a common problem for many retailers. Some common reasons for a stockout include: Production Delays, supply chain problems, Unpaid invoices, Human Error.

If you find that you’re experiencing stockouts frequently, it may be time to consider changing suppliers. Alternatively, you could look into ways to improve your supply chain management, such as partnering with a third-party logistics provider or using tools to help with inventory forecasting.

How a Stockout Affects Your Business

A stockout is a situation where an item is out of stock. This can cause significant problems for your customers, so it’s something you’ll want to avoid.

Stockouts can be extremely detrimental to your business, not only causing disappointment and frustration for you as the owner, but also for customers who are ready to make a purchase and may need your product urgently. Ultimately, stockouts lead to a loss in revenue and can potentially damage your brand’s reputation.

If you experience a stockout, it can lead to a loss in revenue. Not being able to meet customer demand can also damage your brand’s reputation.

Losing a customer to a competitor

Think about how much it will cost you to acquire a customer to your store.

If you have a stockout, you not only lose out on conversions, but the customer will likely purchase from a competitor that has the item in stock. This could result in long-term loss of business.

It’s likely they will buy from the competition again. There’s no doubt that stockouts can have a huge impact on potential business growth.

Paying for a canceled order

We’re sorry for any inconvenience our out-of-stock items may have caused. If you’d like, we can cancel the order and process a refund for you. Please let us know if there’s anything else we can do.

This happens when your inventory isn’t properly tracked and your numbers aren’t accurate.

If an order is canceled, you’ll need to contact the customer with the news and offer a refund. Canceled orders can be costly over time if not managed properly.

Negative reviews

Negative customer reviews can be frustrating, but they don’t have to be the end of your ecommerce business. If you’re seeing a pattern of negative reviews, take a look at your stock levels and make sure you’re not regularly running out of product. You can also reach out to customers who leave negative reviews and see if there’s anything you can do to improve their experience.

Potential customers who see these reviews may think less of your brand because of its negative connotations. Your reviews could be giving your competition an advantage by providing them with information about what you’re not doing well, which they can then use to improve their own products.

How To Avoid Stock outs with Help From a Simple Risk of Stockout Report

During times when your supply is disrupted, it is likely that you will experience a stockout. This is why it is crucial that you put in place measures that mitigate the impact of this on your business.

To avoid stock outs, you need to know which inventory items are most at risk of running out. By understanding when these inventory items are likely to run out and by how much you may be short, you can put a plan in place to deal with the consequences. This way, your team will be prepared for any upcoming challenges and surprises.

By being on top of your inventory, you can prevent potential issues before they happen. By knowing how much you have in stock, you can better prepare yourself and your sales team for any potential challenges.

Key performance indicators for out of stocks include:

A stockout, or inventory shortage, is a situation in which there is not enough of a particular product to meet customer demand. This can lead to lost sales and unhappy customers.

There are a few key metrics that can help you avoid stock outs and keep your business running smoothly.

The first is the number of stock days, which tells you how many days’ worth of inventory you have on hand. If this number starts to get low, it’s time to reorder more product.

The second metric is the shortfall time, which is the total number of days you will be out-of-stock if demand exceeds your current inventory levels. This number should be as close to zero as possible.

The third metric is the maximum shortfall time, which is the longest time period you will be out-of-stock if demand exceeds your current inventory levels. Again, this number should be as close to zero as possible.

Finally, the fourth metric is the shortfall quantity, which is the total amount of units you will have out-of-stock if demand exceeds your current inventory levels. Once again, this number should be as close to zero as possible.

By monitoring these four metrics closely, you can avoid stockouts and keep your business running smoothly.

These key performance indicators can be easily calculated using a ‘stockout risk’ calculator. Start off by calculating your ‘days of inventory’.

This gives you a list of dates when stock will run out based on average sales.

A risk of stockout report can be easily set up by including the following data: current stock items, items on order and in transit, demand forecasts, and lead times. This will help you avoid stockouts by giving you a clear picture of what is happening with your inventory.

How to prevent stockouts for your ecommerce business

For direct to consumer companies, it’s critical that you never run out of stock. Customers can quickly find an alternative product if they can’t find what they’re looking for.

If you experience a high cart abandonment rate, not only do you lose sales and decrease your average order value, but you may also lose potential and returning customers. This can have a significant impact on your customer lifetime value.

To prevent running out of inventory, here is what you can do.

Calculate your safety stock

To calculate safety stock, you will need to know the maximum daily usage and the maximum lead time for each SKU. You will also need to know the average daily usage and the average lead time. With this information, you can accurately calculate the amount of safety stock you need to keep on hand.

Once you have the inventory of each of your stock keeping units, follow these steps:

First, calculate your “max”: (the maximum number of minutes you talk per day) multiplied by (the number of days it takes you to prepare).

Now, calculate the average number of days it takes you to close a deal.

To calculate your safety stock, you’ll need to subtract the average number from the maximum number. This will give you the complete safety stock calculation: (maximum daily usage x maximum lead time) – (average daily usage x average lead time).

Here’s how it works:

Assuming that Company A wants to maintain a 95% chance of not running out of dog food (service level), it would need to keep the following amount of dog food in stock at all times: Company A would need to keep approximately 63 units of dog food in stock at all times in order to maintain a 95% chance of not running out.

So for company A, their inventory level for this item will be:

(20 X 20) – (10X15) = 250

This means that Company A would need to have approximately 250 units of dog food safety stock available at all times. With a safety stock of 250 units, the company would be able to sell approximately 10 units of dog food per day (70week), which would provide enough stock for 3.5 weeks.

As demand fluctuates, it’s important to ensure you always have the right amount of product in stock.

Click here to learn how to calculate your minimum inventory levels.

Future Demand Forecasting Using Historical Inventory Data

Planning for demand doesn’t have to be tough. You can use historical inventory data to predict future sales trends and make better decisions on how much inventory you need in stock.

For example, you can analyze your sales during specific seasons and holidays to determine if you need to order more products.

If the demand for your products decrease, you’ll need to cut back on your supply. This will prevent having too much money tied-up in excess product.

If you have multiple warehouses storing inventory, you can use historical data to optimize stock levels by location based on demand. This will help you keep the right amount of inventory in each location, so that you’re not over or understocked in any one area.

Invest in inventory management

Future demand forecasting is only one part of inventory management. You must also make sure you have the right inventory levels to not only meet customer demand but also budget costs.

If you don’t have enough inventory to fulfill orders, you’ll lose customers. On the other hand, if you have too much inventory, it will tie up your capital in stock and carrying costs, and you may end up with dead stock that can’t be sold. Proper inventory management is essential to ensuring that you have the right level of inventory to meet customer demand while also keeping costs under control.

Proper management of your inventory is key to avoiding a negative impact to your company’s bottom line.

If you want to improve your bottom line, consider using an inventory management software or working with a third-party logistics provider. With inventory management software, you can improve the efficiency of your operations, saving you time and money.

Investing in inventory management can help ensure that your inventory levels are balanced and help with tax purposes at the end of the year.

Conclusion

A Simple Risk of Stockout Report can help you know how to avoid stock outs. Keep an eye on your inventory levels and use this report to your advantage.