Empty Box with Text Out of Stock for Stockouts Blog

Stockouts are the retail equivalent of jilting a lover when it comes to eCommerce fulfillment.

Do all in your power to prevent them.

Why? Just put yourself in their shoes. They’ve researched your product, read the reviews, considered their options, and committed to buying. The single worst thing you can do as an etailer is rejecting them by saying you’re out of stock.

What is a Stockout?

It doesn’t mean stopped or that there’s a widespread market shortage. What’s the definition of out-of-stock? Stockouts or having a stockout means the product is not on hand when your customer is ready to buy. But that’s not how the customer defines it. To them, it means you teased them, led them on, and wasted their time.

Successful eCommerce companies know this and follow best practices to make sure it doesn’t happen. Walmart learned its lesson so well during the pandemic. They boosted inventory 16% in 2021—over $7 billion—in order to avoid the downsides of jilting shoppers.

How much do Stockouts cost eCommerce Companies?

The hit on revenues and profit margins are only the beginning of the opportunity cost of stockouts. But it’s a biggie. In total, retailers lose $1 trillion in revenues a year because of stockouts. This leaves the brands open to losing customers to the competition who have a better handle on their inventory.

Online shoppers are often primed to buy. Disappoint them and another solution is usually just a click away. Don’t count on them giving you another chance either. 37% of consumers decrease their spending with a company after a very bad experience. You won’t just lose this sale, you’ll lose all future sales as well!

Customers are emotional and if you prove yourself to be unreliable, they won’t be brand loyal. 32% of consumers will leave a beloved brand after one bad experience. In addition to losing customer loyalty, they may even review you poorly. This is possibly the worst revenge of all. 94% of consumers say a negative review has caused them to avoid a business.

Take Aim at the 4 Main Causes of Stockouts

Suffice to say stockouts are to be avoided. Know their four causes and you can lower your risk of running out of products.

  1. Inaccurate product counts that are the result of errors. This either lead to lags or not all products are added from locations.
  2. Poor forecasting prevents you from anticipating demand and makes stockouts inevitable. Not having information on most popular items, past periods of demand and sales figures—reporting, basically—prevents you from meaningful preparations.
  3. Transportation and logistics problems like weather delays, port congestion, customs delays and driver delays may be out of your hands. However, that doesn’t mean you won’t be blamed for them.
  4. Supply chain issues can slow or freeze-up re-ups. These issues range from:
    • Shortages in raw materials
    • Supplier delays
    • Unpaid invoices
    • Lack of capital to invest

7 Ways to Reduce Your Risk of Stockouts

The risk of stockouts can’t be totally eliminated, but eCommerce companies can do a lot. 72% of stockouts are due to poor inventory practices. These stem from ordering, replenishing, and forecasting—that puts preventing stockouts largely within retailers’ hands!

1-Know how to calculate safety stock

Safety stock is the extra inventory you store to satisfy unexpected demand. The formula is pretty straightforward:

  • First, determine your MAXIMUM: (Max Daily Sales) x (Max Factory Replenishment Days)
  • Second, determine your AVERAGE: (Ave Daily Sales) x (Ave Factory Replenishment Days)
  • Finally, determine your SAFETY STOCK: MAXIMUM – AVERAGE = SAFETY STOCK

2-Figure out how to set reorder points

Knowing the right time to reorder is as much a matter of discipline as it is of math. The formula tells you to take action, but if you don’t take it seriously, it won’t work. Here’s the formula:

  • Determine LEAD TIME: the average number of days it takes your factory to replenish inventory
  • Next, determine AVERAGE INVENTORY USE: the average daily sales of items
  • Third, find out your DEMAND DURING LEAD TIME: (LEAD TIME) x (AVERAGE INVENTORY USE)
  • Lastly, discover your REORDER POINT: (DEMAND DURING LEAD TIME) + (SAFETY STOCK)

3-Boost inventory for peak planning and promotions

Good reporting is your best friend in forecasting for peak periods. Use your sales figures from past holiday periods to guide your inventory levels and avoid stockouts in the coming seasons. Stockouts are also a risk during and after your promotions. Let the results from past promotions guide your inventory levels here as well.

4-Invest in inventory management.

Stockouts are bad for brands and businesses in the loss of sales. This is both in the short term and growth in the long term. Technology that ties together a high-level oversight of your inventory from raw materials to stocked goods is worth the investment. Also, worth partnering with a 3PL. An inventory management system (IMS) guides you in reordering and stocking products strategically among locations. This allows you to best meet demand. It provides reporting that enables you to keep an accurate centralized count. Also, you can measure inventory turnover and perform inventory accounting. Then, you know when to liquidate slow-moving stock in order to prevent write-offs and recoup costs.

5-Adopt the best practices of inventory control

Knowing with certainty how many units you have on hand, starts with accurate counts. These counts are across all facilities where you store inventory. In e-Commerce, having a real-time count of inventory is a tremendous advantage. IMSs provide a consolidated view of SKUs, but their data output is only as good as their input. It’s critical to maintain standards for consistently scanning barcodes as products move in and out of inventory. Periodic spot checks, although time-consuming, are essential to square the record with reality. Tracking technologies can help. Radio-frequency identification (RFID), and other methods for monitoring inventory levels through sensors, support faster, more frequent audits. Thus, lessening your margin for human error.

6-Manage logistics challenges

Lessen the risk of delays that can lead to stockouts. Create a transportation plan that provides efficiency as well as visibility. This plan will ensure your products get from factory to warehouse as quickly and reliably as possible. Having a 3PL partner with solutions to your challenges lessens the chance of a breakdown. Then your supply chain won’t be leaving your shelves empty. By partnering with a 3PL, you can leverage their transportation management system to monitor and control your shipping. It also enables you to use the services they specialize in. These include less-than-truckload shipping, cross-docking, agile warehouse space, multiple locations, and warehouse staff to aid in fulfillment.

7-Make communication a top priority

Your customers demand the attentiveness and transparency of a jealous lover. Ensure they never run into a stockout. Also, ensure they have full visibility into where their purchase is throughout the process. That starts with full visibility and reporting within your operations. Stay updated on the status of your suppliers and the transportation landscape and know sales forecasts. Information is ultimately the key to eliminating or mitigating the variables that cause stockouts…although diligence and empathy help, too.

Friends don’t let friends jilt their customers. Count on GEODIS eLogistics to help you do the right thing by leveraging technology and experience. Thus, ensuring you always have the right level of inventory available and ready to go.

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