How to prevent stockouts and lost sales

Since a possible effect is losing customers

What happens when the right product is not in the right place when customers are ready to buy? Simple: stockouts and lost sales. If it happens to more than one product in your catalog, it likely leads to lost customers.

Stockouts and bad inventory management, in general, have other negative consequences, just like inventory pileups and markdowns and they are the sign of a poor capacity utilization and unsatisfying service levels. It’s important to find solutions to such events in order to regain the customer’s satisfaction: available products, appealing prices and the capacity to invest on an effective inventory turnover are vital for every business in order to succeed.

Usually, the causes of stockouts and lost sales are related to a broken sales and operations planning process – S&OP – that prevents the company from using the available resources (capital, budgets, warehouses) in an optimal way.

There are many critical tasks in the S&OP process: deciding how many products to make or buy, where and when to make or replenish them, how to choose the right markets where you will send your products. The demand forecasting activity and the analysis of costs, margins and risks are the key factors for a successful decision-making process.

Preventing stockouts and lost sales image

Decisions on the right allocation of the supply chain capacity or the best assortment strategy that optimize both margins and inventory levels are discussed thoroughly among the management team. Sometimes sales teams use lost sales as a key performance indicator – KPI – for the replenishment strategy, by considering them as the forecasted sales for a period, plus the stockouts, minus the actuals in the same period.

An optimal utilization of resources is the goal every company should target, especially when they are tightly constrained. Even with an unlimited budget for the stock replenishment, many businesses couldn’t ignore factors like deterioration and obsolescence of products.

The truth is that the first thing to focus on when stockouts occur is how to achieve an effective inventory and supply chain management. It all starts with an accurate demand forecasting that will make you meet the customer’s intention to buy. By analyzing both users data and exogenous factors that influence customers behavior companies can achieve an impressive demand forecasting: it is central to develop an effective S&OP and will keep stockouts and lost sales away from your business.

Learn more about how to improve your inventory and supply chain management.

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July 26, 2017 - intuendi