What is Out of Stock?
Out of stock, also known as stockouts, refers to a situation when a company runs out of inventory of an item. The two pertinent ones are lack of capital and inefficient cash flow management. Stockouts can happen anywhere in the supply chain, affecting sellers’ profits.
Significance of Out of Stock
Stockout can majorly affect a business in terms of sales and customer loyalty. However, when there is a stockout, it can alarm the company in the following ways:
- It can let the company know about the dearth of the product.
- Out of stock keeps the customers informed about the status of the product.
- It can create good hype about a particular product which the company can launch to the market after a while with a slight price hike.
What Happens in Out of Stock?
As mentioned above, out of stock occurs when there is an unavailability of a particular product. Such situations can lead to:
- Customers tend to wait, and the supplier backorders.
- The customer cancels the order leading to a decrease in sales.
Companies can avoid out of stock situations by following these procedures:
- Increasing inventory accuracy
- Conduct regular counts for inventory
- Set reorder points
- Keep safety stock
- Monitor supply chain
- Liquidate surplus stock
Use Case With Out of Stock
Consider an e-commerce website in the Philippines that organizes Christmas sales. With high demand, some items may run out of stock. To avoid such scenarios, it is important to conduct audits regularly. Setting a standard level of stock is important as well to prevent stockouts.