Managing inventory and the out of stock challenge
As a shopper, we’ve all experienced it. Just when we find that perfect item, our store associate or online shopping cart breaks the news. It’s not in the back. They’ve run out of your favorite color. The size you want is unavailable. In other words, it’s out of stock.
Stock out is a dreaded word—for shoppers, consumer goods brands and retailers.
For consumers, it’s frustrating to say the least and unfortunately an all-too-common occurrence. Currently one out of 13 items that a customer wants to buy is absent from the shelf.
For brands and retailers, the costs of stock outs are high, both for customer satisfaction and loss of sales. Only 15 percent of shoppers delay their purchase with more likelihood of shifting to another brand. And what’s most significant for retailers is that successive out of stocks drive 70 percent of customers to a different store.
This translates to an estimated $129.5 billion in annual losses in North America alone, despite years of research and development to root out inventory problems.
With so much riding on effective inventory management, the obvious question is, “why is this still happening?”
The main causes and impact of stock outs
There are many reasons why out of stock has become an Achilles heel for consumer goods brands. Some of it is self-inflicted, and some of it is caused by factors that are sometimes out of the brand’s control as the out of stock trickles downstream into distribution and field sales channels very quickly.
The leading causes include imprecise demand forecast accuracy, inaccurate data management, low level accuracy for Perpetual Inventory (PI) System, inappropriate shelf-space allocation, and low planogram/floor set compliance.
These stockout problems impair supply chain and sales and operations process management as a whole—not just locally but on a global basis as well.
- Out of stock leads to extra ordering and auditing which is time-consuming thereby decreasing efficiency and productivity in the supply chain.
- Stock outs have a negative impact on forecasting accuracy. Level of accuracy goes down leading to supply imbalances and erosion of brand loyalty.
- Promotions suffer on account of out of stock leading lost sales opportunities and negative ROI on trade promotion dollars and brand erosion.
So, what can consumer goods brands do to better manage inventory and the out of stock challenge?
Inventory management strategies
The good news is that with today’s advancements in technology innovation, there are many new opportunities to plug the varied gaps that exist in ordering, updating and replenishing inventory for multi-channel, multi-site and multi-tier sales and distribution.
Our new eBook, developed in partnership with EKN Research, offers some fresh ideas, strategic solutions and recommendations to contain the out of stock challenge that continues to plague consumer goods brands, their supply chains and retail partners.
Download the guide to Plugging Out-of-Stock Gaps in Consumer Goods for things you can do now and in the long term to prevent stock outs and enhance sales, service-levels and supply chain activities. As you’ll read, even a five percent reduction in stock outs can increase revenue by approximately $20 million.
You can also learn more about Microsoft’s Inventory Optimization solutions and our partners here.
