How to Prevent & Handle Out-of-Stock Items

Posted January 4, 2022

Two business owners managing supply inventory for retail store.

Supply shortages and shipping delays have existed long before the pandemic. However, as we try to get back to normal operations, dealing with these types of challenges continue to create further roadblocks. 

This not only causes stress for your business, but it’s also quite frustrating for customers, too. 

Though many retailers are dealing with major supply chain issues, there are ways to adjust your store’s processes to prevent foreseeable stock outs. There are also many ways to handle these types of situations when they occur. 

Before we dive into this topic, let’s first define what we mean by “stock out.”

What Is a Stock Out?

A stockout is an “out-of-stock” event of a particular product. Depending on the type of item, it could also impact the production or manufacturing of other products that require such inventory to be built.

This is different from a “supply shortage,” where the item is limited in its supply but still available for purchase. A stock out means an item (or items) are currently unavailable. This means you cannot find it in stores and online or have it shipped. 

Common Causes of Stock Outs

Stock outs can occur domestically or globally. Therefore, there are many factors that may contribute to such an event, including:

  • Higher than expected customer demand
  • Supplier delays
  • Shipping Issues
  • Product quality issues or recalls
  • Low safety stock of item

These are all common reasons why your business may experience a stock out, but since 2020, we need to add another cause to the list: lockdowns. 

Even today, with countries going back into unprecedented lockdowns, certain products and international factories that we rely on to supply us with goods remain halted. And one delay there, slowly affects production and inventory here and everywhere—until it eventually becomes a global supply chain issue. 

How to Prevent Stock Outs

The truth is we can likely expect more stock outs to occur in the future. The good news is there are several precautions you can take, as a retailer, to stay competitive and keep your customers happy and loyal. 

Let’s review a few steps on how to prevent stock outs.

Stay Informed 

As a business owner, it’s vital that you stay informed on inventory issues, customer trends, and supply shortages on a local, national, and global scale. 

You don’t want to be the last to learn that a certain item you carry, or material that’s used in the manufacturing of your products, is out of stock. Instead, stay connected and be alert for any news on forecasted shortages to give yourself ample time to plan and prepare your inventory and team.

Monitor Your Safety Stock

Your safety stock is the excess product you keep on hand in the event of an emergency or supply shortage. Make sure this stock is organized, accurate, and well tracked in your inventory management system. You’ll also want to do some calculations to ensure you have the right amount of safety stock on hand. 

You can do this by multiplying the “maximum” amount of product sold within a single day by the “maximum” amount of time it takes for your supplier to deliver your product, once ordered. 

Next, multiply the “average” amount of product sold within a single day by the “average” shipping time. Subtract the two totals, and you should get a fair estimate on how much of this product you’ll need in your safety stock.

Integrate Your Data

If products are going off your store shelves faster than you can count, it might be time to invest in an inventory management software that allows you to track and monitor current inventory, pending orders, daily sales, backorders, etc. This is especially true if you operate both a brick-and-mortar retail store and an eCommerce store. 

You want all this information and data to sync instantly, too. This way you’ll always know how much product you have in stock and when to reorder new inventory. Because there are many different platforms out there, try to choose a software that features demand forecasting. This tool can help you predict potential out-of-stock items before they happen. The result is you’ll be able to prepare your safety stock ahead of schedule. 

What To Do When An Item Is Out-of-Stock

Though we all try to prepare, sometimes, a stock out is beyond our control. When this happens, you might dread the repercussions. These could range from unhappy customers choosing a competitor over you to bad reviews or paying for canceled items. 

To protect your business, you might consider the following next steps:

Source Locally

If your out-of-stock issues are related to an international supplier, ordering your inventory from a local or national supplier could prove beneficial and will also help the local economy.

“With international factories and ports being tied up, it may behoove you to focus on local or national suppliers. Evaluate the items on your catalog and see if you can order them from vendors within your region,” (vendhq).

Provide an Alternative Solution

If you notice an item is running out-of-stock, consider stocking up on an alternative product, or a business bestseller, to entice shoppers to purchase something different that offers the same benefits. 

Make sure to educate your team on why this alternative is a good find, too. That way when customers come in looking for the out-of-stock item, they are provided with a better solution, better service, and better all-round experience. 

Stay Transparent

Understand that your customers are already well-versed in the current supply challenges our country is facing. In fact, many may be more willing to join a waiting list for when a product is back in stock. Or, they may purchase an alternative to help support your brand. The most important thing you can do as a retailer is to be transparent and solution-orientated with your customers. 

Keep them in the loop and let them know that their support is what keeps you moving forward. As we noted in past articles, customers are always on the lookout for authentic brands. So, if you’re upfront about a supply issue but provide an alternative solution, there is a higher probability that they will value your honest approach and stay loyal to your brand.

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