Stockouts are becoming more and more of a problem due to a variety of issues worldwide. It may be getting harder to avoid running out of stock, but that shouldn’t stop successful retailers from doing everything they can to prevent stockouts from happening.
Digital technology can help retailers to avoid stockouts, with tools that can be used for everything from improving inventory management to communicating more effectively and efficiently in-store and behind the scenes.
Join us as we examine the common causes of stockouts, explore why it is important to avoid them, and take a look at what retailers can do to prevent them.
What are stockouts?
A stockout occurs when a product is temporarily unavailable or out of inventory. When customers cannot purchase a product, they often go elsewhere to do so, even if the stockout is temporary. Stockouts hurt retail outlets and contribute to consumer dissatisfaction.
Common causes of stockouts
There are several reasons why a retailer might experience stockouts, depending on the type of merchandise they sell and various other factors like store location, retail trends and global supply disruptions. Common causes of stockouts include:
Supply chain disruptions
Anything that throws off the smooth flow of products, like natural disasters, labor strikes, or production problems, can cause items to be unavailable, leading to stock shortages.
Poor demand forecasting
Poor inventory management can lead to retailers’ being unable to accurately predict what customers want, and they might not maintain enough stock. This could mean needing to keep extra inventory just to meet demand, which in turn can lead to expired merchandise and financial losses.
When suppliers don’t deliver goods on time, especially during high-demand periods, businesses might run out of stock waiting for the supplies they need.
Promotions and seasonal changes
Unexpected periods of high demand, caused by events like seasonal shifts or promotions, can strain inventory. Failing to plan for these changes can lead to items being out of stock.
Product quality problems
If a product has quality issues and customers are returning it, suppliers might struggle to replace the items quickly, resulting in stock shortages.
Shortage of funds
If a business doesn’t have enough money to operate smoothly, they might not be able to order enough stock. Poor cash flow management or having too much money tied up in excess stock can lead to stockouts.
Incorrect inventory records
Mismatched records of what a store has and what they’ve sold can lead to stockouts. If the actual inventory is lower than what’s believed, items might run out unexpectedly. Effective inventory management is crucial in any industry, and the best approach may vary according to the type of retail outlet. Pharmacies, grocery stores and liquor stores each face unique challenges when it comes to inventory management.
Mistakes in planning and human error
Errors in inventory management, forecasting, or simple human mistakes can all contribute to stock shortages.
Issues in the transportation and logistics processes, like shipping delays, can also lead to products not being available when needed.
Why it’s important to avoid stockouts
Running out of stock can spell trouble for businesses, and here’s why:
When products are unavailable, potential sales slip through the cracks. Customers might turn to competitors or decide not to buy at all. This hits a company’s profits hard.
Consumer dissatisfaction and lost customers
Stock-outs diminish customer satisfaction and erode customer loyalty. If a retailer frequently runs out of items, customers might lose trust and permanently switch to other options.
Damaged brand image
Regular stock-outs can tarnish a brand’s reputation. Customers may start associating the brand with unreliability. Bad word-of-mouth and negative online reviews can scare away new customers.
Stock-outs come with extra costs like managing backorders and rushing to reorder items. These hidden expenses eat into a company’s profits and operational efficiency.
Missed opportunities for upselling
When popular items are unavailable, retailers not only lose immediate sales but also the opportunity to suggest complementary products via streamlined tunnels like digital signage. This means lower sales and missed chances for growth.
Supply chain problems
Stockouts can signal bigger issues in the supply chain, like delays, poor forecasting, or financial constraints. By addressing the root causes of stockouts, retailers can identify and fix underlying problems and make their overall retail operations smoother and more resilient.
How to avoid stockouts
Digital technology is key to preventing stockouts in today’s retail landscape. Rather than an advantage, digital transformation is the expected norm, and for good reason. The digitization of data collection and communication allows for faster, more efficient and more effective retail management.
1. Clean data
Retailers can keep data clean by embracing digital technologies. Digital tools like Electronic Shelf Labels allow for real-time stock updates and help managers keep their data up to date and accurate, allowing for more accurate inventory predictions and timely, efficient ordering. Live inventory data allows for fast and accurate assessments both in-store and in warehouses.
2. Improved demand forecasting
Understanding what your customers want is vital for your business. By effectively implementing IoT, retailers can look at past sales data and trends and accurately predict which products will be in demand. This not only ensures that you order the right amount of stock at the right time but also helps in reducing excess inventory and the costs associated with it.
3. Strong relationships with suppliers
Communication is key in any successful partnership. Rely on digital communication to keep your suppliers in the loop about any changes in your business that might affect your inventory needs. A good relationship ensures you get the inventory you require precisely when you need it, and helps reduce the risk of stockouts.
4. Reorder points
Every product has a threshold level. Reorder points are the triggers that indicate when it’s time to restock. Use digital data collection to understand the speed at which your products sell and the time it takes to restock. By calculating these points, you can keep your inventory at optimal levels, preventing stockouts.
5. Just-in-time inventory
Why keep more than necessary? Just-in-time inventory is about having what you need, exactly when you need it. When an order comes in, you produce or purchase only what’s required to fulfill that order, avoiding overstocking and losing merchandise. Safety stock is no longer a priority. Digital technology makes this type of ordering fast, efficient and cost-effective.
6. ABC analysis
Not all products are created equal. Some are more important for your business than others. ABC analysis categorizes your inventory into three classes: A, B, and C. A items are your top priority, while C items are of lesser importance. This classification helps you focus your attention and resources where they matter the most. Inventory management software makes it possible to analyze your stock behind the scenes, quickly and accurately.
7. Invest in new technology
In today’s digital age, new technology emerges quickly and retail businesses need to keep up with the changes to maintain a competitive edge.
- Relying on digital signage to implement an effective in-store communication strategy makes it possible to update promotions according to supply, minimizing the impact of stockouts on your customers.
- Using Electronic Shelf Labels saves time and energy, which is especially helpful during labor shortages.
- Implementing an inventory management system helps you keep a close eye on your stock levels. It tracks sales trends and even automates the reordering process. This ensures you never run out of products unexpectedly, keeping your customers satisfied.
8. Diversify your supplier base
Putting all your eggs in one basket can be risky. Relying solely on a single supplier increases the chance of stockouts if they face production or delivery issues. Diversifying your supplier base spreads the risk and ensures a steady supply, even if one supplier encounters problems. With digital tracking and digital communication methods at your fingertips, it’s possible to maintain multiple relationships and make appropriate supply decisions in real time.
9. Monitor and adjust inventory levels
Change is constant in the business world. Regularly reviewing your inventory levels is crucial, and made much easier by implementing technology like Electronic Shelf Labels and relevant retail management software. Keep an eye on shifts in customer demand, seasonal variations, and other factors. By staying proactive and making necessary adjustments, you can prevent stockouts and keep your inventory management finely tuned.
JRTech: digital technology for better stock management
All retailers want to avoid stockouts, and digital technology can help. With the right approach to digital transformation, preventing stockouts can be a challenge rather than an impossibility. Choosing the most relevant technology is key, and it’s up to businesses to decide which of the many digital tools on the market will be most effective for their unique retail environment.
JRTech Solutions is a leading supplier of state-of-the-art digital signage and Electronic Shelf Labels in North America. Contact us to learn more about implementing these tools in your store now.