Stock-outs: a nightmare that can and should be avoided

[Receiving an order and not having or not having enough of the product demanded is one of the worst nightmares of any businessman.
Stock out is one of the most serious mistakes that can be made in logistics and has serious consequences, beyond the loss of the sale, such as the deterioration of the company’s image or credibility.
In this post we will delve into the causes, consequences and, most importantly, how to avoid it.
In order not to suffer a stockout, it is essential to know how to find the balance between product demand and the amount of stock available in the warehouse.
But achieving this balance is not an easy task, as it does not always depend on us.
Therefore, it is essential to know what can cause this lack of goods.

Causes of a stockout

The reasons why a company may suffer a stockout are diverse and can occur at different stages of the supply chain:

1. Unexpected increase in demand.
   This is one of the most common and usually occurs on key dates.
   An example would be Christmas.
   Despite having everything perfectly planned, the mere fact that a toy becomes fashionable can break the balance between stock and demand, since the production and distribution cycle is greater than the margin given by the dates.
2. Poor forecasting.
   Miscalculating sales is another clear reason for stock breakage.
   Internal problems or the lack of automation of orders are two common causes of this poor forecast of what is going to be sold.
3. Human error.
   This is as common as it is dangerous, leading to stock-outs.
   A simple human error along the supply chain can lead to a stock out.
   One of the most common human errors is not updating stock data or not placing products correctly in the warehouse.
4. Problems with suppliers.
   Suppliers have a major influence on the supply chain, as we depend on them to have the goods we need to fill orders.
   If they do not supply us with sufficient products, stock-outs are inevitable.
5. Accounting failure.
   Strict control of accounting is essential to avoid inaccurate or poorly recorded data, resulting in a bad stock calculation.
6. Transportation delays.
   Directly related to any of the above, a delay in transportation can ruin the necessary balance between stock and demand and cause delays in delivery to the end customer.

How to avoid stock-outs

To avoid a stockout, we must focus all our efforts on avoiding any of the causes mentioned above, or at least on those that depend on us.

• A good demand forecast.
  This is a complex calculation that we must make taking into account or what has been sold previously as well as activity peaks.
  We must plan demand as efficiently as possible and with a realistic view of what is happening within our company.
  The objective is to foresee variations in demand with enough time to make decisions to avoid stock-outs.
• Automation.
  Resorting to the latest technologies is no longer an option in logistics, it is an obligation.
  Automating warehousing processes, using specialized software, allows us to keep a tight control of the stored stock.
• Control inventory KPIs.
  Good control of these indicators, as well as the turnover rate, coverage or demand that we can cover with the current stock, is key in inventory management and can prevent stock-outs.
  We must carry out controls at the order points, have emergency stock or mark the quantities desired by the customer.
  This way we will know when we have to reorder more products or raw materials, safety stock or minimum stock.
• A good maintenance of the facilities.
  Any incident in our warehouses can result in stock breakage.
  For this reason, we must draw up a detailed maintenance program for equipment and facilities.
• A good relationship with suppliers.
  Knowing our suppliers well is essential to minimize the risk of stock-outs.
  We must evaluate our satisfaction with each of them in aspects such as delivery times, information management or production capacity, in order to anticipate possible problems and avoid stock-outs.
• Coordinate our departments.
  Poor coordination or communication between the company’s departments is one of the most frequent reasons for a stockout.
  It is, therefore, vital that there is a good coordination and to achieve it, an excellent option is to implement software that gathers all the information in the same place to which all the workers of the company have access.

As we have seen, minimizing the danger of a stockout is not only possible but absolutely necessary to avoid the loss of sales and customers, damage to brand image or increased logistics costs.[:]