You have spent a ton of money on marketing. Your customer has navigated the journey to your store, be it offline or your Ecommerce site. They intend to buy. But they can’t because you are out of stock.
Out of Stock shouldn’t happen in 2017. Big Data and other tools have existed for over 15 years that allow your Demand Planner to get your sales forecast accuracy over 95%. Your safety stock should easily cover the variation between your forecast and demand with known lead-times for production and logistics built in.
If you are running a Vendor Managed Inventory model, then your supplier’s Demand Planner should be able to predict with a very high degree of certainty, how much product needs to be on the shelf, out the back of the store, in the warehouse and in-transit. Forecast models can include promotions, seasonality, even weather, but they are only as good as the data that goes in.
The problem with Out of Stocks is that they have a circular negative impact on your planning. Not only does being out of stock lead to lost sales, it also hides the true demand for a product. Here is an example.
On day 1, you have 3 units in stock. By lunchtime, you have sold 3 units and replaced them with 3 more units from the warehouse. By the end of the day you have sold those as well.
What you know is that you have sold 6. What you don’t know is that towards the end of the day, 2 more customers shopped for the product and it was out of stock. Your true demand is 8, but you order 6 more. If this pattern repeats, your past sales figures will show steady 6 per day, but you are missing out on 2 sales per day because you were out of stock.
In some categories, a customer will switch, preferring to buy a different brand instead of leaving the store and buying somewhere else. This also distorts your data. Not only do you not order enough of the Out of Stock product, you order too much of the product that was switched to.
If you are running an E-commerce store and you allow customers to order stock that is not available or back-order stock, then you have a better chance of understanding what the true demand for a product is.
An Omnichannel approach to your business also helps to capture the true demand. Such an approach requires a single view of inventory across the whole supply chain. This, in turn, enables store personnel to capture that a sale was lost due to an out of stock, or being able to supply the product from another store or warehouse. Even being able to tell a customer when the product will be back in stock might save a lost sale.
No Comments