Every so often, a product is introduced to the market and, rather suddenly, it seems that everyone has to get his or her hands on it. For a well-prepared business, this is a great opportunity to increase revenue and gain new customers. However, if a business is unprepared, the surge in demand can result in an array of issues, from inventory shortages to product stockouts.
A recent example of this was the surge in demand for face masks and cleaning products due to the global COVID-19 pandemic. The entire world was trying to stay safe and healthy, and neither brick and mortar stores nor online retailers could keep up with the demand. The huge uptick in orders for these products created many problems for companies selling them. The coronavirus pandemic is an extreme example that sellers couldn’t possibly have anticipated. However, you can plan for some situations that could result in stockouts. Being proactive can lead to more positive outcomes.
What Is a Stockout?
A stockout happens when orders for a certain product exceed the amount of inventory you have on hand. Essentially, it means you’ve run out of a product that customers have purchased. Stockouts can happen when there’s a sudden surge in demand, like in the example above, or when there’s a problem in your supply chain, and you simply cannot get the product you need.
Unfortunately, stockouts can result in a loss of sales If online buyers can’t get the product from you, they’ll probably look to your competitors to find it. Even worse, this can lead to dissatisfied customers, which affects customer relations and retention.
How to Prevent Stockouts
Preventing stockouts, as with any process, takes time and resources. Here are four strategies that can help you avoid stockouts:
#1 – Keep Accurate Inventory Data
Many stockouts occur when companies have inaccurate data, and there are numerous ways these inaccuracies can happen, including:
- Data entry mistakes
- Incorrect physical counts
- Vendor mistakes
Fortunately, there are solutions that’ll help you maintain accurate inventory data. Performing physical counts more often is one solution as it’ll help you identify stock discrepancies that can be investigated and addressed immediately. Ecommerce reporting is also crucial when you’re monitoring stock levels and product demand trends.
Another important solution is investing in an ecommerce inventory management software that easily tracks and syncs your inventory across all sales channels, saving time and helping to eliminate stockouts. With ecomdash, you’ll have peace of mind knowing your inventory is being accurately managed.
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#2 – Know When to Reorder
Knowing when to reorder stock needs to be data-driven. Setting inventory controls and keeping safety stock can help you avoid stockouts.
Start optimizing inventory management by setting alerts to ensure you have enough product on hand, even in times of unexpectedly high demand. Begin by ranking your inventory based upon sales performance because 80% of your revenue will be generated by 20% of your inventory. An example of how to categorize inventory, based on their sales performance, is as follows:
- Category 1: products in the top 10% of your inventory.
- Category 2: products between 10-20% of your inventory.
- Category 3: products between 20-50% of your inventory.
- Category 4: products in the bottom 50% of your inventory.
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Once you have the rankings in place, calculate safety stock levels: the amount of each product you need to have on hand in order to avoid stockouts before a new shipment of inventory arrives. Having safety stock will give you a buffer for when demand for your products increases unexpectedly.
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With safety stock numbers calculated, the next step is to create a minimum stocking level for each category of your inventory. Here is an example, from QuickBooks, of how to determine minimum stocking levels for each category:
- Category 1: These are your top-performing products. You should have the most buffer here. Double your safety stock number to determine a good minimum stocking level for products within this category.
- Category 2: Items in this category are also top sellers. Create the minimum stocking level by multiplying your safety stock amount by one and half times.
- Category 3: Keeping inventory at the level of your safety stock is sufficient for this category.
- Category 4: For your lowest selling products, order when purchased, if you have a short lead time. Otherwise, keep a small amount available to ensure that your shipping delivery times are not affected. Also, think about working with a supplier who fulfills these items.
#3 – Maintain Good Supplier Relationships
Sometimes preventing stockouts has nothing to do with technology or maintaining accuracy, but rather it involves nurturing relationships. When you’re running low on stock, your suppliers hold the key to replenishing your supply so you can fulfill orders. The relationship you have with suppliers can have a huge effect on preventing stockouts. If you have a positive, mutually beneficial working relationship with your suppliers, they’ll be more willing to help when stock issues arise. Conversely, if you don’t have a good relationship with suppliers, they’ll be less likely to help with an inventory emergency.
Treat suppliers like partners, focusing on building strong relationships. Those relationships may save your store from the negative consequences of stockouts.
#4 – Reduce Human Error
Employees are the most important resource for any company. They’re also the most likely to make mistakes. Human error happens, it’s just a fact. However, you can reduce the potential for human error by providing effective and comprehensive employee training and supervision. The people who work for you need to understand how your inventory system works and know all the procedures involved, regardless of how technologically advanced your system is. They need to understand potential issues so they can be proactive before they happen. Having proactive, well-trained employees will help prevent mistakes that can lead to stockouts.
#5 – Always Be Transparent
Even with the best systems and planning in place, stockouts and overselling can still occur. If it does, being transparent with your customer is key to keeping their trust in your business and cultivating good relationships.
Update your listings to accurately reflect their out-of-stock status, accompanied by a sincere, apologetic message. Offer to send out email notifications to interested customers when the product is back in stock. If the product was discounted when it went out of stock, consider offering a rain check on the discounted price to further ease your customer’s mind.
Planning for demand and having systems in place to prevent stockouts are very important for the health of your business, and your customers will appreciate it too.
Want to become an ecommerce inventory expert? Read our ultimate guide to multichannel inventory management for everything you need to know about managing inventory across multiple platforms.