Stock outs are a serious problem. Research has shown stock outs average 8%, but can be as high as 40% on promoted items. So, retailers and vendors are losing up to 40% of their potential sales on some items. The financial impact is often exasperated by an overly large order to compensate for the back-order of demand and, the retailer hopes, add some safety stock. This of course just compounds the problem by increasing inventory costs and reducing GMROI. Maybe worst of all, research shows when consumers are faced with an out of stock situation they will continue purchasing the items on their list but go elsewhere to buy that lost item. If the out of stock happens a second time, they are likely to change retailers. If it happens one more time, they are likely to change brands all together.
Here are some steps that can be taken to reduce stock outs:
- Use a data analysis tool to proactively monitor POS data on fast moving items.
- Use a data analysis tool to calculate min/max on the longest time series of data possible, and be sure to account for geographic variances.
- Coordinate your promotions internally, and among your supply chain.
- Assume new product introductions will create an inventory problem and plan accordingly.
- Leverage the experience of your vendors by empowering them to analyze sales and inventory data.