Preventing Stockouts: 5 Preventable Causes of Out-of-Stocks and What to Do About Them

Stockouts almost always make it into the"worst nightmare" lists of merchants, and for good reason. Not only do they lead to lost sales, but out-of-stocks also lead to decreased customer satisfaction and reduced loyalty levels. Shoppers often feel disappointed when you do not have what they're looking for, and the last thing you need is to disappoint clients.

Fortunately, however, there are a range of solutions to your out-of-stock woes. Many causes of stockouts can be avoided by taking steps to better understand your organization and products, and by optimizing your shop's processes.

To give you a better idea of how you can accomplish this, below are 5 common causes of stockouts and pointers on how you can sidestep them:

1. Inaccurate data

It is very simple to run into inaccuracies when dealing with stock. Between dispatch variances, misplaced goods, yields, and stolen goods, retailers realize that the stock numbers they have on paper (or on screen) frequently do not match what they have in their shops.

Such discrepancies may result in merchants mistakenly thinking they have an item in stock when they do not, so they wind up re-ordering the incorrect products or quantities.

How can you tackle this? Consider the following:

A. Utilize a contemporary inventory system

The first step to preventing discrepancies is to employ an electronic (ideally cloud-based) stock system. Keeping track of products with a pencil and paper is not just time-consuming, it may also lead to mistakes.

It's ideal to use a point-of-sale or stock system that automatically simplifies stock levels as you ring up sales, so you won't need to worry about manually updating your database. Such solutions are also beneficial if you have many locations since they let you manage a number of stores from one location.

Not ready for a complete retail management solution? Consider creating an inventory management system in Excel. It's simple, simple, and it may provide you the data you will need to spot inventory inaccuracies.

B. Stay organized and attentive

Modern inventory systems can only go up to now. Even though a nifty solution may keep your databases synced, it can not deter shoplifters nor will it prevent suppliers from providing the wrong quantities.

That is where your diligence and organizational abilities will come in. Get to the root of your stock discrepancies. Is it a problem with your vendors? Are you dealing with theft? Whatever the situation, find the reasons why the numbers are not adding up and take the necessary measures to stop them.

When it's an issue of vendor discrepancies, as an example, you might choose to make changes with deliveries are managed in your shop. Maybe you have to reschedule shipments to be certain that deliveries do not happen all at once, or perhaps you will need to assign someone to double check the packing slips.

Dealing with theft? It might be time to upgrade your security system or re-arrange your shop to make it easier for partners to keep your eye on shoppers.

c. Consider RFID (Radio Frequency Identification)

Other retailers are taking on a more hi-tech approach in regards to keeping inventory accuracy. Many are currently using RFID--a technology which can store and monitor product information by means of a chip embedded in a product's label or packaging.

RFID enables merchants to track and search for product using a handheld scanner (see picture above), which makes it quicker and easier for them to monitor where every item is.

"People manually counting things in the supply chain take too much time; it's too costly and can also be fraught with error," writes Will Roche of Xterprise on RetailSoulutionsOnline.com. According to him, RFID technology is the very best solution for stock data inaccuracies, particularly for apparel and footwear retailers.

d. Conduct regular stock counts

You can not have accurate numbers if you are not monitoring and updating them. While contemporary stock systems can do a excellent job at keeping your inventory levels in check, you still need to have a handle on the quantity of physical stock that you have.

That is where physical stock counts come in. Set aside time to rely on your products and make sure that what you have on paper matches up with what is actually in-store or on your backroom.

Retailers typically have two choices when it comes to inventory counts: full inventory counts or cycle counting.

With complete inventory counts, you will have to set aside several hours to count every product that's in your shop. You can opt to do it once you shut for the day, but if that is not enough, you might need to stop operations for approximately half a day or so. (make sure to notify your clients beforehand!)

If you are not keen on closing your shop, then cycle counting may be a better choice. This system entails checking and counting just a small choice of SKUs daily until you are ready to"cycle count" through your whole catalog. It permits you to remain on top of inventory counts without needing to close your shop.

The"right" method is determined by each shop, so see which clinic works best for you. But whether you choose to conduct whole inventory counts or you would rather stick to cycle counting, aim to count all your merchandise once per month, or at the very least, once every quarter.

Preventing stockouts requires you to have close real-time details on which you have (or do not have) on hand. You won't be able to do this in case you're only counting your product once or twice per year.

2. Struggling to re-order in a timely fashion

This problem is pretty simple: goods are flying off the shelves faster than you can re-stock, and this leads to you selling from in-demand products. How do you prevent it? Here are a couple of ways:

a. Find OOS (out of stock) patterns

Try to detect OOS trends in your shop. A study by P&G discovered that OOS"often form patterns like day of week," and retailers may locate them by regularly auditing their stock and taking notice of the times and days of the week when they generally undergo stockouts.

By taking a look at the data, it appears that OOS for this specific store peaks throughout Friday afternoon, Saturday at noon, and Sunday late afternoon. With this data in mind, the merchant can then schedule to have products delivered and replenished at just the right times to make sure they don't run into out-of-stocks.

b. Implement demand forecasting

As the term suggests, this procedure is all about anticipating demand so that you can determine what products to order and when.

You can attempt to forecast demand by yourself by using your judgment and factoring in stock turn, sell through, historical sales data, and other elements such as promotions, seasonality, economic condition, etc.. Crunching these numbers should provide you some insights into the products will perform.

1 example of a retailer that forecasts demand economically is Christmas Elves, a vacation shop in Australia.

"I must put my Christmas orders in January or February each year, so we pretty much get 1 shot at purchasing. If I under-purchase and sell out then I lose sales opportunities," he said.

According to Jason, he pays close attention to the rate at which products are selling. "I call it speed reports. I look at the number of trees are available per week and monitor the sales progression with time.

"By looking at if earnings spike and which products are selling the most, Jason and his staff can find a clearer idea of the number of units to order. Jason says that he looks at earnings velocity reports for certain products and their general classes, and this allows him to determine what things to order and if there are any related products he could purchase.

C. Pay attention to customer trends

Historical information is great, but in addition, you need to look closely at customer trends in your marketplace. Are there any new products that people are gravitating towards? Are there any styles which are making a comeback? Take note, then stock up so.

Jason over at Christmas Elves does a excellent job at using tendencies to forecast demand. According to him:

"For instance, there's this tendency in the moment where clients have moved away from purchasing white Christmas trees, and rather are buying snow covered or flocked Christmas trees. In other words, fewer people are buying white and more people are purchasing green trees with snow on them, so it resembles a real winter wonderland."

"Looking at earnings reports enabled us to identify that tendency, so we have not purchased many trees that are white, and those we have are available"

d. Set re-order points

As soon as you've some idea of your out-of-stock patterns and the quantity of merchandise you need to have at any given time, create re-order points to make certain you could order the ideal merchandise when necessary.

For best results, use a POS or stock management solution that lets you place re-order points, which means it is possible to get notified if stock is running low.

3. Bad management of people, procedures, and technology

You can have strong tools and strong inventory programs in place, but if you do not have the ideal workers to implement them, you are still likely to run into stockout difficulties.

As an example, you might have enough inventory in the backroom, but if your team is not staying on top of replenishing the shelves, clients may presume that you don't have the product available. Or, your stock system may be offering some fantastic insights, but if your employees do not understand how to interpret the information, then they can not put the information to good use.

Avoid such problems from happening by investing in three areas: people, processes, and technology.

Let us begin with the first one:

a. People

Invest in better training for your employees. See to it that they not only understand how to operate your system but that they are also aware of what information and insights to do it on. If possible, have a ConnectPOS or, technology partner, or consultant conduct the instruction to make certain they get the proper education.

Additionally, note that investing in your team is not just about training them. In addition, you have to invest in their wellbeing. Happy employees work harder, are more motivated, and create better outcomes, and that's the reason why retailers must keep finding ways to enable them.

b. Processes

Design a company flow detailing the inventory process in your shop, then assign individuals to have each step. Who's responsible for receiving items? Who is supposed to replenish your shelves? At what stage should the staff reorder goods, and who's responsible for doing it?

Have everything down on paper. Doing this will help you and your employees understand the process and execute it properly.

This is exactly what Chris Herbert and Christian Smith of TrackR did. In a post on Entrepreneur, they spoke about how documenting their stock process -- from getting a buy to fulfillment -- allowed them to remain on top of things.

They wrote:

We created our company flow chart Mad Men design -- with no computers, fancy or email software services. The final result? We had a record that detailed all of the different people necessary to meet an order and all the required communications between them. We then ushered this 1950s flow graph to the 21st century by picking some automated software.

Consider doing the exact same for your store. Be clear on how stock flows in your company, write down the procedure, and get your employees on the exact same page.

c. Technology

Arm yourself (and your staff ) with tools that will make inventory-centric jobs simpler.

Planograms -- A lot of retailers use planograms to make visual representations of the products should be organized in their shop. Planograms are helpful for merchandising purposes and will help retailers perform appealing displays. They're also an outstanding tool for staying on top of shelf stock. By providing your employees a planogram to refer to, they can easily see if they have to replenish store shelves and if all these products are in the ideal location.

Inventory counting tools -- Are you still using paper and pencil to physically count your product? Do yourself (and your employees ) a favor and switch to a more modern tool instead.

Our recommendation? Scanner, a free recorder app for stock is effective on iPhone, iPad, and iPod Touch. The app enables you to scan all the most frequent barcodes and datamatrix codes, then it saves the title and amount of items that you scan.

From there, you can save your goods to a CSV file, which you can then email to yourself or your employees. And if you are a ConnectPOS user, Scanner automatically syncs with your account, so there is no need to deal with CSV files and email.

In-store Analytics -- you may also consider more complex tools like in-store analytics solutions which enable you to measure foot traffic. Apart from enabling you to get to know your customers better, these tools also can help you staff your stores more efficiently.

By understanding when your peak hours are, you are able to arrange staff schedules so, and you won't need to worry about not having enough people restocking the shelves or assisting clients.

4. Poor communication or relationships with your suppliers

Failure to manage or communicate effectively with providers may result in missed or delayed orders, which may subsequently lead to stockouts.

How can you avoid all that? For starters, work on your communication. Get all purchase and deadlines on paper, then see to it that everybody is on the same page. You also need to be prompt and allow your providers know about any problems as soon as possible.

As an example, if a product is selling faster than anticipated, do not wait until is stock is reduced before taking action. Get in touch with your vendors ASAP, then plan your next purchase.

Additionally, it can help to leverage provider platforms that facilitate communication between you and your vendors. A fantastic example of this is Bira Direct, a product buying group for independent retailers in the United Kingdom. Bira Direct has 200+ encouraged providers and enables Bira members to enjoy exclusive purchasing terms and discounts.

Lastly, think about sharing data and predictions with your vendors, so you can both agree on merchandise ordering and schedules.

"One way that supply chain relationships often break down in the retail sector is that product forecasting is imperfect," says Attorney Sarah Rathke, a partner at Squire Patton Boggs.

"Retailers sometimes don't know or fail to satisfactorily analyze, how much of a given product their customers will probably demand over the coming purchasing phase. Suppliers then are left completely in the dark."

It's crucial that you invest in the essential forecasting tools and procedures, so you and your providers are on the same page in regards to the merchandise which you want.

Consider what Spreadshirt, a platform for personalized clothes and accessories, is performing. According to international apparel supervisor to Kristina Michniak, they"continuously update and share fresh predictions [with providers ] for real-time and accurate monitoring of the international supply chain."

5. Not enough working capital

Some companies run into stock-outs due to lack of funds to buy new inventory. If that is you, then you will need to figure out ways to increase cash flow. Now, each Firm's financial situation is different, but here are some things you can try to free up some working capital:

A. Liquidate surplus inventory

Dealing with excess inventory? Attempt to move that inventory when you can. Set them on sale or package them with high-performing products to get them off the shelves. If this does not work, see if you're able to sell them to liquidation companies.

B. Collect on outstanding invoices

Do you have clients who owe you money? Contact and remind them about any outstanding invoices. Staying on top of on-account sales is vital, as it will make it possible for you get much-need (and well-deserved) funds into your organization.

c. Increase sales

Another way to increase cash flow? Sell more. Brainstorm ways to increase earnings and earnings on your shop. Can it be a matter of improving your product offerings? Do you have to make your promotions more enticing? What can you do to get your current customers to buy more?

Spend some time answering these questions. You are bound to come up with ideas that will assist you generate revenue and enhance cash flow.

Over to you

Are stockouts a huge problem in your shop? How do you cope with them? Tell us in the comments.

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