Stockouts in Supply Chain: Causes, Consequences, and Solutions

Any time your business runs out of a product, this frustrating situation is known as a stockout. Stockouts are more than just an inconvenience for your business. They also risk customer dissatisfaction and potential damage to your brand’s reputation. 

Although it’s impossible to eliminate stockouts entirely, you can take steps to minimize their frequency and mitigate their impact. Learn about the most common causes of stock issues and solutions you can implement to better meet customer demand. 

The Most Common Causes of Stockouts

The best way to keep stockouts from impacting your business is to learn why you experience them in the first place. Understanding what causes your stockouts will help you avoid them. The most common causes of stockouts include: 

  • Inaccurate demand forecasting
  • Inefficient inventory management
  • Supply chain disruptions and delays
  • Overall poor communication

Some of these factors, such as supply chain delays, are out of your control, but learning how to best manage your inventory can help you keep appropriate product stock on hand most of the time. 

Consequences of Stockouts in Supply Chain

Many customers understand that the occasional stockout is bound to happen. However, frequent stockouts can negatively impact your business. 

Lost Sales and Revenue

Lost sales and revenue are the most immediate consequences of stockouts. When popular items are out of stock and your customers can’t buy them, you lose out on sales and revenue. Some of your customers might wait until the item is back in stock, but others will look elsewhere, reducing your overall sales. 

Customer Dissatisfaction and Erosion of Loyalty

Customers who try to buy out-of-stock items may become frustrated, particularly if you currently advertise the products on your website or other marketing channels. These customers may begin to see you as unreliable, eroding the trusted relationship you’ve built over time. 

Some of your customers will leave after their bad experience and instead turn to a competitor out of necessity, shifting their future business as a result. Once consumers no longer trust your brand, you’ll likely see a drop in customer retention. 

Impact on Brand Reputation and Overall Costs

If your lack of stock supply upsets enough customers, you may receive multiple negative reviews. Too many bad reviews will cause your overall rating on Google and other search engines to plummet. More than half of customers will only do business with companies with a four-star or higher rating. 

Along with the unwanted attention, you’ll likely have to absorb some stockout costs. These include lost sales and revenue and increased shipping costs to rush inventory to your warehouse. Conversely, if you order excess inventory, you’ll have to pay more to store it and eventually dispose of what you can’t sell. 

Effective Solutions To Mitigate Stockouts

Even with the best preparation, you run the risk of stockouts. Every industry has its own average stockout rate, and circumstances beyond your control will happen. However, being prepared gives you more power to mitigate the negative impacts of stockouts and improve customer retention. 

Implement Accurate Demand Forecasting Techniques

Accurate demand forecasting allows you to keep the right amount of stock on hand to meet customer demand while minimizing excess inventory. Use demand forecasting tools that draw on historical data and market insights to predict demand and optimize your inventory management. 

You can also use a tool that offers notifications about your inventory levels. This tool shows you when to order safety stock to meet increased customer demand before an item runs out. With the right software, you can maintain inventory accuracy and avoid stockout costs. 

Adopt Advanced Inventory Management Systems

Stop relying on standard inventory management systems and go for an upgrade. Advanced inventory management systems are often more accurate because they update in real time. Instead of having your distribution center team take manual inventory and enter all stock levels into a spreadsheet, an advanced system will automatically update inventory levels when you ship an item. 

With these tools, you will ensure your in and out stock levels are up to date across all sales channels. For example, if a product is listed as sold out online, a customer can check your website to find an accurate list of nearby locations that may have the item. When your customer service team can access the same data, they can offer solutions to get the product to your customer.

Build Resilient and Diverse Supplier Relationships

While you can’t control supply chain delays, you can take steps to minimize how stock issues impact your business. One way to mitigate the impact of stockouts is to work with a wide range of suppliers as part of your supply chain management. If you only work with a few suppliers, you are forever at their mercy. There may be an increase in demand you can’t meet because your vendor simply doesn’t have the product in stock. 

For example, your vendor may be impacted by a natural disaster, delaying your ability to get inventory into your distribution center. Diversifying your network allows you to tackle these issues when they arise. If one of your suppliers is out of an item or experiences a disruption to their business, you can work with another vendor to meet your customer demand. 

Leverage Surgere’s Solutions and Prevent Stockouts

Advances in technology help you more accurately predict supply and demand and plan your inventory accordingly. Surgere offers a one-step solution for inventory and warehouse management. Our solution allows you to automate parts of your supply chain so you always know how much inventory you have on hand. 

Our solution offers insights into your inventory levels to plan for shifts in customer demand over time. We also offer tools that allow you to manage your warehouse and plan your supply chain to give customers better estimated arrival times and increase operational efficiency

Contact us today to learn how Surgere can improve your inventory management systems and reduce stockout rates.

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Surgere creates and manages IoT supply chain solutions, providing real-time intelligence, 99.9% data accuracy and actionable insights.

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