Avoiding stockouts is crucial to staying competitive and profitable for ecommerce brands. Let's delve into what constitutes a stockout and its causes so we can identify 11 essential strategies to prevent such supply chain disasters from occurring in the future.
What is a stockout?
A stockout is any instance when a product becomes unavailable when a customer is trying to make their purchase.
Stockouts cause significant financial consequences for retailers, estimated at a total cost of $350 billion annually for US and Canadian stores combined.
Online shoppers experience even more frustration as there may be few indicators separating temporary technical problems from a more extensive disruption in supply chains.
"Stockout" in ecommerce refers to when an item becomes inaccessible at one or more online stores despite still being accessible elsewhere. Ensuring the appropriate products appear on digital shelves is critical for optimal order fulfillment, increasing the likelihood of sales and providing exceptional customer experience.
Retailers must proactively explore ways of preventing stockouts, rather than being reactive when faced with them, to keep customers loyal to the original brand and not seek alternatives or postpone purchases altogether.
What causes a stockout?
Stockouts occur due to multiple causes. Retailers must proactively seek ways to prevent them by prioritizing inventory management as a strategic goal rather than treating it as a reactive endeavor.
Let's take a look at the most common causes of a stockout.
Lack of stock level data
Real-time visibility into inventory levels across marketplaces is of utmost importance for ecommerce retailers.
Imagine an consumer electronics company selling its latest smartphone model across several ecommerce marketplaces. Without an integrated ecommerce set-up, it is faced with a lack of real-time stock data. As a result, it is inadvertently overselling units, leading to cancelled orders, resulting in customer dissatisfaction, damaging its seller reputation across platforms.
Improper inventory management and demand forecasting
Demand forecasting involves analyzing historical sales data, market trends, seasonality, and external factors to anticipate customer needs. When not implemented effectively, brands either underestimate or overestimate customer demands.
This leads to stockouts and unhappy customers, excessive inventory tying up capital, and increasing holding costs due to an incorrect demand prediction.
Similarly, poor inventory management can result in suboptimal stocking levels and inefficient allocation of resources, leading to stockouts or overstocking - both with financial and customer satisfaction repercussions.
Unexpected spikes in demand
Ecommerce brands experience sudden surges in demand due to special events, like Black Friday, for instance.
Black Friday has become an international shopping phenomenon, with 87.2 million consumers purchasing items in the US alone in 2022! It's easy to see how improper planning can lead to stockouts during these busy periods.
Top 11 tips to avoid stockouts
Experience and well managed ecommerce operations can help you prevent stockouts. Here are 11 top tips that will help position your brand for success.
1. Fully integrated back-end systems
At the forefront of today's interconnected business world is the need for seamless information flow. Back-end systems must ensure that sales channels, inventory management, and order fulfillment work harmoniously to minimize stockout risks.
Marketplace integration software enables this synergy by connecting all your ecommerce systems and automating up-to-date stock levels across multiple marketplaces. Hence, you are always ready to meet customer demands.
2. Demand forecasting
Predicting the future is never easy, but inventory management can save you from an out of stock situation. Demand forecasting relies on historical data, market trends, and specialized tools to predict future demand.
Providing accurate forecasts is vital for ordering sufficient quantities without overstocking or experiencing shortages in stock levels. By applying this technique, you're better able to allocate resources efficiently while keeping cash flow under control.
3. Effective inventory control procedures
Efficiency in inventory management requires more than simply counting items. It involves employing best practices that ensure products move seamlessly from shelf to customer. This may include techniques like ABC analysis to prioritize items based on importance.
Just-in-Time (JIT) inventory guarantees you have stock exactly when needed, cutting costs. First-in, First-Out (FIFO) rotation ensures older stocks are used first, thus preventing spoilage or obsolescence of older stock. All these techniques combine to maintain optimal stock levels while avoiding stockouts or overstocking.
4. Gaining an edge with your selling models
As customers increasingly purchase across multiple channels, relying on just one sales channel can be risky. Therefore, businesses that sell on multiple marketplaces should prepare contingency plans if one channel faces stockout issues.
If you use a hybrid selling model, you should be able to switch to your own logistics if your Amazon stock sells out, for example.
Adaptability is a crucial element in maintaining smooth supply chains. You can ensure consistent product deliveries even under extreme conditions with contingency plans.
5. Develop strong supplier relationships
Your suppliers are the foundation of your inventory. Cultivating strong relationships with them is paramount to maintaining an adequate supply chain. Regular communication, setting clear expectations, and monitoring their performance are the pillars of an efficient relationship. By keeping open lines of communication with suppliers, you can anticipate potential issues early and address them before they become issues.
Through performance monitoring, you ensure suppliers fulfill their obligations, helping ensure steady supplies during high demand or disruption periods. These relationships could mean the difference between stockouts and success.
6. Resilient supply chain
An agile supply chain is your lifeline in an unpredictable marketplace, helping your business quickly adapt to ever-evolving circumstances. Diversify sources to reduce dependency on any single supplier or location. Optimize transportation routes to minimize lead times and costs. A responsive supply chain should also be adaptable enough to adapt to sudden shifts in demand or unexpected disruptions quickly - this ensures your stock levels stay steady while keeping customers satisfied.
7. Utilizing safety stock
Safety stock acts like an insurance policy against market unpredictability. It acts as a buffer by keeping extra inventory on hand for unexpected fluctuations in demand or supply chain issues. Keeping some extra stock of your most important SKUs on standby helps to prevent stockouts during peak times or when issues arise that could disrupt production chains.
While carrying costs may increase slightly with safety stock in your inventory mix, it provides excellent peace of mind.
8. Track, monitor, and analyze
Monitoring and tracking operations are essential to business. Establishing key performance indicators (KPIs) allows you to accurately measure inventory turnover, lead time, and order accuracy.
Conducting regular analyses of this data enables early detection and corrective actions. For instance, if lead times increase suddenly, proactive KPI monitoring allows timely action for supply chain delays to address them promptly. Data-driven decisions are your secret weapon for proactive inventory management.
9. Technology can revolutionize inventory management
Cutting edge ecommerce technology is an invaluable asset. Inventory management software can streamline operations, reduce errors, and provide visibility into your stock levels. By automating routine tasks with scripts and accessing real-time data from anywhere, investing in technology will help optimize inventory management and give your business a competitive edge in the marketplace.
An investment in technology is an investment in your future!
10. Training your team
Your team is at the core of inventory management. As the team implements your strategies and makes daily stock-level decisions, ensuring they are well-trained is paramount for effective inventory management. Training empowers your team members to make informed choices that recognize early warning signs of stockouts quickly to prevent them. Moreover, having knowledgeable and competent teammates will drive inventory processes toward new levels of efficiency.
11. Review and modify regularly
Ecommerce is ever-evolving; what works today might not work tomorrow. For this reason, regularly reviewing your inventory strategies and being open to adjustments are essential components of staying ahead of the game. Keep tabs on market trends, customer preferences, and industry innovations while adapting inventory management practices accordingly to reflect these developments.
Working in this way ensures you are avoiding stockouts while building an efficient supply chain network.
Final words
Stockouts in ecommerce can be highly detrimental, as certain products become unavailable precisely when customers are ready to make a purchase decision.
Ecommerce brands must invest in advanced inventory management and forecasting tools to effectively address risks such as inadequate stock level data, inaccurate demand predictions, and unexpected surges in demand, leading to lost sales and dissatisfied customers.
By taking proactive steps against these challenges, your business can enhance customer satisfaction, reduce revenue losses, and strengthen their position within an increasingly competitive online market.
