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Inventory Stock Out: Everything You Need to Know in 2024

2.5 minutes

In this article, we explain what inventory stockout is and why it happens. We also share our simple 5-step process to help you prevent it, with real-world examples. Read on to learn more.

inventory stock out

What Is Inventory Stockout?

An inventory stockout occurs when an item that is typically available is not on hand when a customer or employee looks for it. 

Example: Tech Guru Electronics normally sells 500 units of a particular smartphone model every month. However, in May, they only had 300 units in stock, and by mid-month, they were unable to meet customer demand.

Why Does Inventory Stock Out Happen?

Inventory stock outs can happen due to a variety of reasons. Some of these include:

Inaccurate Demand Forecasting: If a business underestimates the demand for a product, it can lead to insufficient stock levels.

Supplier Delays: Delays from suppliers can disrupt restocking processes and lead to unavailable items.

Inefficient Inventory Management: Not tracking inventory levels or having outdated systems can cause stock discrepancies.

Economic Factors: Unexpected economic shifts can suddenly increase or decrease demand for certain products.

Quality Issues: If a batch of products is found defective, they might be pulled out, leading to a stockout.

Logistical Challenges: Transportation delays or issues can prevent stock from reaching the store or warehouse on time.

inventory stockout

5-Step Framework to Prevent Inventory Stockout

Preventing inventory stockout is crucial for maintaining sales and customer trust. To do this, simply follow our 5-step process below: 

Step 1: Accurate Demand Forecasting

By analyzing past sales data, seasonal variations, market trends, and other influencing factors, businesses can more accurately predict future demand.

Example: "BlueWaves Swimwear" uses past sales data and upcoming fashion trends to estimate they'll sell 10,000 units of a new swimsuit design.

Step 2: Build Strong Supplier Relationships

Establishing good rapport, regular communication, and mutual trust with suppliers ensures timely restocking and prompt handling of any supply chain issues.

Example: "GreenLeaf Teas" achieves a constant supply by collaborating closely with multiple reliable suppliers.

Step 3: Use Modern Inventory Management Systems

Leveraging technological advancements, such as RFID or barcode systems, allows businesses to track inventory in real-time and receive instant notifications when stock levels dip below a set threshold.

Example: "AutoGear Motors" deploys an RFID system that alerts them the moment a specific car part falls below the desired stock count.

Step 4: Regularly Review and Adjust 

Continuously monitoring stock levels, sales data, and market trends helps businesses adjust their procurement strategies to better match the prevailing demand.

Example: "LitBooks Store" holds monthly stock reviews and modifies orders in line with observed seasonal reading habits.

Step 5: Maintain a Safety Stock

Keeping a buffer or surplus of high-demand items safeguards against unexpected spikes in demand or potential supply chain disruptions.

Example: "CrispySnack Foods" consistently stores an extra 5,000 packets of their top-selling chips to counter unpredictable surges in demand.

what is an inventory stockout

Case Study

EcoBuild Hardware has been experiencing stockouts of their eco-friendly paint range. To address this, they decided to follow our step-by-step framework: 

Step 1: Accurate Demand Forecasting

They analyze past sales and find that the demand for eco-paints increases by 20% during spring. So, they forecast a need for 12,000 cans for the upcoming season.

Step 2: Build Strong Supplier Relationships

EcoBuild strengthens their relationship with "NatureTint Paints," their primary supplier, ensuring consistent communication and faster response times.

Step 3: Use Modern Inventory Management Systems

They implement a barcode system, enabling them to track every paint can that comes in or goes out.

Step 4: Regularly Review and Adjust 

After the spring season, they review their sales data and adjust their forecast for summer.

Step 5: Maintain a Safety Stock

To safeguard against sudden demand or supply chain issues, EcoBuild decides to maintain a safety stock of 2,000 cans.

We hope this article has given you a better understanding of what an inventory stock out is and how to avoid it. 

If you enjoyed this article, you might also like our article on liquidating inventory or our article on restocking inventory.

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