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Out of Stock Inventory: Everything You Need to Know in 2024

3 minutes

In this article, we explain what out-of-stock inventory means. We also provide a simple step-by-step process on how to avoid out-of-stock situations. Read on to learn more.

Source: vajro.com

What Is Out of Stock Inventory?

Out of stock inventory refers to the unavailability of items or products that are supposed to be on hand in a store or warehouse. It signifies a gap between the demand from customers and the supply available.

Example: Breeze Wear introduced a new lightweight hiking jacket. They projected sales of 10,000 units for the entire season. However, an unexpected early winter in several regions boosted demand. They exhausted their stock within a month, leaving 8,000 eager customers facing out-of-stock notifications.

Common Causes of Out-of-Stock Inventory

Out-of-stock inventory can arise from various logistical and planning oversights, including:

Inaccurate Demand Forecasting: Misjudging market demand can result in either excess inventory or stock shortages. 

Supplier Issues: Dependence on suppliers means any delay or hiccup from their end can disrupt stock availability. 

Inventory Mismanagement: Without efficient inventory management systems, items can easily go out of stock unnoticed.  

Economic Factors: Fluctuations in currency values or the imposition of tariffs can impact the cost and timing of orders. 

Natural Disasters:  Events like floods, earthquakes, or hurricanes can severely disrupt both production and transportation. 

5-Step Process to Manage Out-of-Stock Inventory

Addressing out-of-stock situations requires a systematic approach to ensure customer satisfaction and continued sales. Here’s how we do it: 

Step 1: Assess the Severity

Evaluate the current inventory against expected demand to gauge the potential impact on sales. Determine if it's a short-term lapse or a more extended stockout.

Example: Aqua Marts found that they ran out of bottled water stocks during a heatwave, with a demand spike of 150% over their usual sales.

Step 2: Notify Customers

Promptly inform customers through preferred communication channels about the stock issue. Provide an estimated date for restocking and any reasons for the delay.

Example: When Tech Galore Inc. launched its latest tablet, they quickly realized stocks would deplete before the next batch. They promptly informed the 10,000 customers on the waitlist through email with an expected restock date.

Step 3: Source Alternatives

Identify other suppliers or similar products that can fill the gap. Ensure these alternatives align with your brand's quality standards and customer expectations.

Example: Ocean Delight Restaurant sourced tuna as an alternative to salmon, serving 200 dishes that week at a discounted rate of $15 instead of the usual $20.

Step 4: Review Supply Chain

Examine your supply chain for any bottlenecks or inefficiencies causing stockouts. Collaborate with suppliers to optimize and streamline processes for quicker restocking.

Example: Elegant Furnish, upon realizing a 3-week delay on oakwood shipments from one supplier, began sourcing from another and reduced their lead time by 10 days for their 500 monthly orders.

Step 5: Offer Incentives

Examine your supply chain for any bottlenecks or inefficiencies causing stockouts. Collaborate with suppliers to optimize and streamline processes for quicker restocking.

Example: Vogue Apparels offered a 10% discount to the next 300 affected customers after running out of their popular size M summer dress, reducing potential refund requests by half.

Case Study

Elite Shoe Co. recently launched a new shoe line and predicted sales of 5,000 pairs in the first quarter. However, they sold 4,500 pairs in the first month alone. 

Here’s how they used our 5-step process to deal with the situation: 

Step 1: Assess the Severity

After analysis, they discerned a potential shortage of 3,000 pairs before their next shipment.

Step 2: Notify Customers

They immediately updated their 25,000 monthly website visitors, informing them of the stock situation and the expected restock date two months away.

Step 3: Source Alternatives

In response, EliteShoe Co. collaborated with SoleMakers Ltd. to roll out an interim shoe design, producing an additional 2,000 pairs.

Step 4: Review Supply Chain

To address future demand, they engaged their primary supplier, boosting production by 60% to ensure an extra 3,000 pairs for the following month.

Step 5: Offer Incentives

As a gesture of goodwill and to retain customer trust, they issued a 15% discount coupon to the 1,500 customers impacted by the stockout.

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

If you enjoyed this article, you might also like our article on inventory safety stock or our article on too much inventory on hand.

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