Out of stock is the unsatisfied demand due to the shortage of products in stock.
Out of stock, therefore, occurs when the inventory that the company has is insufficient to cover the amount of products that consumers want to buy - demanded.
Causes of stock out
Some of the causes of out of stock are the following:
- Unexpected increase in demand: A sudden increase in demand for a product can cause a stock out of stock. This situation would affect the company's production chain, given the popularity of a certain good. Therefore, it would require an evaluation to determine the increase in demand. In other words, it is important to know if it is due to conjunctural or structural factors in order to make the relevant adjustment.
- Defective sales planning: This refers to a poor projection of the company's sales level. Unlike the above, in this case it is due to foreseeable increases in demand.
- Management deficiency: Lack of communication between departments can lead to production delays. This, due to not communicating an order in advance or the existence of bureaucratic processes to formalize purchase orders.
- Poor inventory control: This point refers, for example, to the lack of periodic stock updating. An error of this type could indicate that the quantity of products required is in stock, when in fact it is not.
- Supplier delivery delays: This could indicate a lower order volume or transportation delays.
Consequences of stock out
Some of the consequences that this situation can cause for the company are:
- Loss of sales: Clearly, income is lost due to unsatisfied demand.
- Customer dissatisfaction: By not finding the products they want, customers leave without meeting their needs or desires. This could mean a decrease in the number of clients.
- Loss of credibility: The loss of credibility would generate significant damage to the brand. This would create reputational damage that could be fatal, depending on the competitive environment of the company.
- Logistics costs: The company will be forced to reduce delivery times to solve the situation. Therefore, requiring a faster transportation service will require paying a higher price.
How to avoid stock out of stock?
Some of the measures that can be considered to reduce the risk of stock breakage are:
- Sales planning: First, the sales model must be optimized. That is, improve or use a demand model that allows anticipating market variations with a greater margin. It must also be able to predict the seasonality of the sector. That is, the trend of demand throughout the year.
- Stock planning: Employ and monitor the minimum and safety stock. This makes it possible to improve the capacity to respond to variations in demand.
- Order point: Optimize this indicator to avoid possible delays in the delivery of suppliers. This refers to when orders are placed to minimize warehousing costs.
- Optimize the management system: Promote and streamline internal processes for sales planning.
- Scheduled break: A possible break can be scheduled, as long as the customer is flexible with the delivery. This strategy could be relevant when there is not enough infrastructure for storage.
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