24 October 2021 Stockouts occur when, upon receiving an order for a specific product or raw material, your company does not have those items in stock in the necessary quantities and conditions. For this reason, purchases cannot be made. This incidence generates very negative repercussions, as not only is the sale lost, but the company’s image is damaged in the eyes of the customer. This means financial losses for the company. A study conducted in 2018 in the United States by the IHL Group revealed that retailers are losing nearly 1 trillion dollars in sales by not having the product available when the customer wants it, which means they miss great opportunities to increase their revenues. In this sense, stockouts end up being much more damaging than one might imagine. The truth is that finding the balance and maintaining the right amount of stored goods to prevent stockouts is not easy, especially these days. However, even if it is a complex task, a good warehouse manager cannot neglect it, after all, it has a direct impact on the quality of customer service. If the consumer wants to buy something and finds out that the product is out of stock, it is very likely they will switch to a competitor and not return soon. And no one wants that to happen. Unpredictable demands require efficient inventory control Retailers are discovering that customer demand is becoming increasingly unpredictable, making it more important to change the way they manage their inventory. You can no longer rely on intuition when it comes to maintaining the ideal stock level. Any receipt can leave the warehouse depleted at a key moment. So, how can you permanently eliminate stockout problems? The key is to develop efficient strategies and have the right tools to help you control your inventory. Here are some tips for efficiently managing inventory and avoiding stockouts. 1. Master your deadlines The period between your purchase order and the actual delivery date by the supplier is of fundamental importance. That’s why it’s necessary to control deadlines with suppliers so you can meet customer demands and minimize the gap between paying for inventory and receiving revenue. In this way, you maintain accurate stock levels and avoid stockouts. 2. Automate the process with WMS Trying to balance overstock and understock can be a challenge. If you stock too little, you can run out of stock, which leads to dissatisfied customers and potential sales loss. On the other hand, if you stock too much, you occupy precious warehouse space and likely incur additional costs. Fortunately, WMS software helps you prevent this from happening. By using the system, you can monitor low stock levels and quickly identify reorder points for each of your products, avoiding stockouts. 3. Calculate Replenishment Points (RP) Whenever a product in stock falls to the minimum level, we say it has reached the Replenishment Point (RP). When activated, it signals that a restock is needed or new purchases must be made. Your replenishment points are likely different for every product you sell: items generally have different demand rates and vary in the time needed to receive the replenishment delivery. This is where the great help of WMS comes in, as you can parameterize the system with a minimum stock of each item and, when it occurs, the WMS automatically issues replenishment orders. Operators receive these orders on their devices and start activities. This way, delays in replacement are avoided. 4. Use demand forecasting Another way to reduce inventory levels and avoid stockouts is through accurate demand forecasting. Demand forecasting, determined by analyzing reports and sales history, allows you to order only the stock necessary to meet demand throughout the year. In this way, you reduce inventory costs, as you do not overload your warehouse nor leave empty spaces that can lead to stockouts. Additionally, predictive data analysis prepares you to make business decisions based on past months, helping you estimate the correct size of your inventory. It’s worth noting that WMS also aids in this task, along with the ERP. The warehouse system provides the history of incoming and outgoing movements and the ERP provides sales data. With these indicators, you can perform predictive analyses with greater assertiveness. 5. Implement Just in Time (JIT) inventory management Just in Time Inventory Management (JIT) is a method for maintaining almost no inventory in your warehouse, ordering everything you need when you need it. In other words, JIT means having the right products, at the right time, and in the right place, along with other necessary materials. This reduces inventory levels as items and materials are ordered only when necessary, instead of months or weeks in advance. With JIT you also reduce inventory costs. However, although JIT significantly reduces your inventory, there may be a risk of stockouts. For example, if there were a sudden and unexpected increase in customer demand for a specific product, you might not be able to fulfill the order as expected. Therefore, for JIT to work well, it is necessary to develop a strong relationship with your suppliers. 6. Use consignment stock Consignment inventory is different from traditional inventory practices in that the supplier retains ownership of the inventory until it is sold to the customer. In other words, the retailer does not pay for the product until it is sold. This practice reduces inventory levels and shifts your company’s inventory movement costs to your supplier or manufacturer. It is a fairly common practice for expensive retail inventories such as furniture or other large items. Consignment inventory can also be advantageous for online retailers when customer demand for certain products is uncertain. Additionally, the retailer assumes a much lower financial risk with consignment stock, as they do not pay for the product unless it has been sold. 7. Have safety stock Stockouts result from many different factors, including fluctuating customer demand, inaccurate forecasts, and variability in delivery times. One way to reduce the risk of this stockout is to maintain a safe level of stock in the warehouse. Safety stock is simply extra stock that is stored to avoid stockouts. The correct levels to set depend entirely on your business. Some factors must be considered, such as specific characteristics of demand or product and the product’s lead time (time it takes for the supplier to deliver the goods). The biggest challenge of having safety stock is calculating as accurately as possible the optimal amount of items to store and finding a beneficial balance between the investment you will make and the profits from sales made. In short Finding the balance and maintaining the right amount of inventory for your business is not an easy task. In fact, it can take a long time to perfect inventory levels. By observing stock, making good demand forecasts, and using the tactics mentioned above, you can permanently eliminate cases of stockouts. Finally, one of the quickest ways to reduce stockouts is to enable staff to be more efficient in the workplace. Additionally, if you have a good WMS system, you will be able to monitor stock levels in real time (Management at a Glance), as well as have alerts and notifications that prevent stockouts. WMS is an important ally when it comes to serving your customers well! Stockout: permanently eliminate the problems caused by stock shortages Deagor WMS per ecommerce può aiutarti!