What is an Emergency Stock in E-commerce?
Emergency stock in e-commerce is a strategy used by retailers to ensure that a certain amount of inventory is always available for customers to purchase.
This stock is usually maintained in a separate warehouse and set aside for emergencies, such as unexpected surges in demand or when existing stock runs out. The goal of emergency stock is to ensure that customers have access to the products they need when they need them.
Significance of Emergency Stock in E-commerce
Emergency stock is an important part of the e-commerce supply chain as it helps to ensure that customers can get the items they need as and when required.
- Emergency stock is used to manage fluctuations in demand, allowing businesses to have the necessary stock to meet customer needs without overstocking or understocking.
- Having emergency stock on hand can help to reduce the risk of stockouts and delays in order fulfillment.
- It helps to ensure customer satisfaction and loyalty, as well as helping to protect the company’s reputation.
Prerequisites to Calculate Emergency Stock
- Inventory data: This includes knowing what items are in stock, how much of each item is in stock, and when the items will need to be replaced.
- Reorder point: Reorder points are the level at which the inventory of an item should be replenished. This is calculated by considering the lead time for replenishing the item, the usage rate, and safety stock levels.
- Lead time: It is the amount of time an inventory item takes to arrive once an order is placed. This includes the time it takes for the order to be processed, shipped, and received.
- Safety stock: It is a buffer of extra inventory in case of unforeseen circumstances, such as a sudden, unexpected increase in demand or an unexpected delay in the delivery of an item from the supplier.
Use Case with Emergency Stock
Assume company XYZ deals in surgical equipment. And due to the pandemic, there’s been a surge in manufacturing with a sudden increase in market demand. The company could use its emergency stock to respond quickly to sudden changes in customer demand, along with avoiding accidental stockouts.