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E-commerce, Logistics, and Small Business Management
How to Understand & Prevent Stockouts
In eCommerce, managing stock availability is undoubtedly one of the most challenging parts of running a business. If your company does not have available stock to fill orders, customers become disappointed, and your store’s reputation can suffer. If your business keeps too much inventory on hand, this unnecessarily ties up capital that could be used in more valuable ways. To help business owners better understand stockouts, this article addresses why they occur and how to prevent them.
Why do Stockouts Occur?
Stockouts often happen due to a lack of resources or imperfect planning, but they can also stem from unexpected issues that are out of your company’s control. Here are the most common reasons stockouts occur:
Lack of Integration
If your business operates through multiple sales channels, you need fast integrations between your sales platforms and your inventory management system (IMS). This helps you account for common inventory that is used to fill orders for multiple channels simultaneously. If your IMS is not integrated with your sales platforms, you run the risk of inaccurate inventory availability and stockouts.
When store owners underestimate customer demand, they may find themselves with insufficient inventory. Whenever possible, sellers should look to historical data to forecast customer demand. Examining past trends will allow you to more accurately predict how much stock you should order.
Occasionally, businesses must contend with threats like supplier delays or inventory that has been damaged in transit. External issues like these can create unforeseen product shortages and are perhaps the most frustrating reasons for stockouts. Ensure that you have enough buffer inventory (otherwise known as safety stock) to guard against issues like these beyond your control.
If you run out of capital to purchase inventory, this could spell disaster for your business. Perhaps you optimistically overestimated sales, or your revenue became tied up in a merchant services hold — without adequate cash, stockouts are especially difficult to overcome.
With the rise of social media as an essential marketing channel, some companies experience unexpected surges in demand due to a successful influencer strategy, a hot ad, or a viral post. While companies often hope for this kind of success, most are unprepared for the uptick in orders that results.
Tips for Preventing Stockouts
Find the right inventory management system.
As we mentioned above, this is especially true for any business selling inventory through multiple sales channels. Working with a third-party order fulfillment provider will guarantee that your business has access to advanced software that integrates with major platforms like Shopify and WooCommerce.
Set reasonable reorder points.
Determining when to reorder dwindling stock is somewhat of a science. Most inventory management software programs will allow sellers to set automated reorder points based on historical data, but you can also calculate optimal reorder points manually using the ROP formula.
Manage buffer stock.
Keeping reasonable buffer stock on hand can prevent stockouts that occur for any variety of reasons. Holding too much buffer stock, however, can lead to capital being unnecessarily tied up in inventory. Understanding how to calculate and manage buffer stock is one of the best ways to guard against insufficient levels of inventory.
Audit your inventory.
Perform regular inventory checks to ensure that your physical inventory matches up with stock levels in your system. Keeping close track of your inventory will also allow you to evaluate warehouse staffing, storage, depreciation, and inventory shrinkage, which can all influence your company’s ability to protect against stockouts.
Build strong relationships with your suppliers.
Cultivating a positive relationship with a reliable supplier will allow you to predict stock availability and delivery timeframes with greater consistency. Having several reliable suppliers can also be helpful in the event one has significant delays or supply chain issues.
Stockouts can arise for a variety of reasons within an eCommerce business. Having a robust inventory management system, sufficient safety stock, a functional inventory auditing process, and strong relationships with suppliers all help to protect against this frustrating operational issue. If you are looking for a third-party order fulfillment provider who can help, contact IronLinx today.