Online shoppers are very frustrated when, after an often lengthy search, they find the ideal product, only to discover that it is not available due to lack of stock. For the customer it can be a big disappointment, but for an e-commerce company it is a sure way to lose revenue.
If products are constantly out of stock due to a lack of synchronization of the platform with the actual stock, it can cause a big drop in potential sales, drive away customers and ultimately slow down business growth. In this article, we’ll go over the causes of stock outs and how to prevent them from affecting long-term business growth.
Stock-outs occur for a variety of reasons and are often unavoidable and out of our control. However, with the help of good partners and the right technology, such as good warehouse management software, we can mitigate some of these problems.
These are the main factors that contribute to a business’ stockout:
- Inaccurate demand forecasting: Demand forecasting can seem overwhelming. It is no small feat to try to predict how much of a given product is needed to meet customer demand. It is vital to have a solid understanding of historical sales data so that accurate forecasts can be made. In addition to inaccurate data, seasonality and geographic locations (both logistics center and end customer) can affect your demand forecast. That’s why working with a third-party logistics provider (3PL) and using tools to help with inventory forecasting can help companies avoid stock-outs.
- Supplier and production delays: Reliable partners are crucial to running a successful business. Running into constant delays can result in products not getting into the hands of customers. If these types of delays occur frequently, you may need to consider switching to a different supplier or finding other ways to improve your supply chain management.
- Poor cash flow management: Not having enough cash on hand can also cause stock-outs. You may have forecast the amount of inventory you need to keep in stock, but you can’t buy it without sufficient funds. If this is a recurring problem for your business, it may be beneficial to get more funds or better financial planning. Also, taking a look at your business plan and finances can help you understand when is the best time to buy inventory; this way, you can determine when you have the most money to spend.
- Human error: In the end we are all human and no one is perfect. Manually counting inventory or having an outdated inventory management system can lead to problems with inaccurate inventory counts. As a result, stock-outs could occur. Implementing a reliable inventory management system is one way to ensure that human error is minimized.
Ultimately, stock outs can have a negative impact on your business profitability, customer satisfaction and brand reputation. Identifying the causes of stock-outs and implementing effective strategies to prevent them is critical to ensuring adequate inventory and maximizing sales. With efficient inventory management and the implementation of appropriate solutions, you can minimize shrinkage losses and remain a competitive business.
