What does stockout mean?

Stockouts, also known as out-of-stocks, occur when a specific item or product runs out of inventory, making the purchase not possible. In other words, it happens when demand is higher than the inventory available.

According to an analysis made by Adobe, stockouts were up 250% in October 2021 and shoppers saw over 2 billion out-of-stock messages online in that period. 


What causes a stockout?

Stockouts can be caused by several factors, such as inadequate planning and forecasting, higher than expected demand, supply chain inefficiencies, and production problems. In addition, stockout issues can also arise from inaccurate inventory tracking and lack of visibility into the entire supply chain.

There are many different reasons that can cause stockouts, such as:

  • Item counts that do not represent the actual number;
  • Inaccurate sales reports;
  • Failure to understand consumer behavior;
  • Logistical problems;
  • Delay of suppliers

How can stockout costs be calculated?

Stockout rate can be calculated by subtracting the inventory of a particular item from the amount of orders placed for that item. This calculation gives you an accurate estimate of the number of stockouts that the business has experienced.

On the other hand, to calculate stockout costs, use the following formula:

SC = (D x AS x P)

SC = Cost of stockout

D = Number of Days Out of Stock

AS = Average Units Sold Per Day

P = Price Per Unit or Profit Per Unit

Other factors that affect the cost of a stockout include customer service costs associated with resolving stockout issues and any additional costs incurred from dealing with suppliers.

How do you prevent a stockout?

To prevent stockouts and avoid losing customers and revenue, retailers can:

  • Make sure that inventory data is up to date to avoid disparities in item counts;
  • Invest in more accurate demand forecasting;
  • Use some inventory management software;
  • Know how to deal with logistical challenges;
  • Have a good safety stock;
  • Have more than one supplier available;
  • Implement a Omnichannel strategy to integrate the inventory from the sales channels (physical store, ecommerce, etc.).

See also

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