One of the biggest challenges faced by the retail industry is stock-outs. A stock-out occurs when a product is unavailable to customers due to insufficient inventory. This can have a significant impact on both customers and retailers. NielsenIQ has even launched a barometer for On-shelf-availability and reported that 7.4% of CPG revenue in the United States is lost due to stockouts representing $82 billion of unrealized revenue in 2021.
In this blog post, we will explore the consequences of stock-outs and how they can affect the retail industry and what can be done to identify, predict and mitigate stockouts.
Consequences of Stockouts
Stockouts can have various negative consequences for retailers.
- Loss of Sales: When a customer comes to a store looking for a specific product and finds it out of stock, they are likely to go to a competitor to make their purchase. This leads to an immediate loss of sales for the retailer.
- Customer Dissatisfaction: Stock-outs can also result in customer dissatisfaction. Customers who have a negative experience due to stock-outs are less likely to return to the same store in the future. This can lead to a loss of long-term customers and a damaged reputation for the retailer.
- Missed Opportunities: Stock-outs can result in missed opportunities for retailers. If a customer cannot find a specific product, they may decide to explore alternative options or try new brands. This can lead to lost market share for the retailer and an inability to capitalize on potential sales.
- Impaired Supply Chain: Stock-outs can disrupt the supply chain of a retailer. This can be especially problematic for retailers who rely on just-in-time inventory management or have complex supplier relationships. Stock-outs can lead to delays in deliveries, increased costs, and inefficiencies within the supply chain.
- Loss of Productive Staff Time: When consumers come to the store for specific item and cannot find it they will likely ask the staff to help locate this. Some research puts the increased time spent shopping at 21%.
Strategies to Prevent Stockouts
To mitigate the impact of stockouts, retailers can implement several strategies. One of the most effective approach is to start with an AI driven predictive system that will help identify the likely root causes for stockouts. Prioritizing and addressing root causes will have the fastest time to value as well as impact to revenue and overall results. Strategies to prevent stockouts can be categorized as:
- Inventory Management: Implementing robust inventory management systems and processes can help retailers avoid stockouts. Regular monitoring of inventory levels, implementing reorder points, and utilizing forecasting techniques can ensure that retailers have the right amount of stock at any given time. Running additional cycle counts, audits, loss prevention as well as receiving process can help improve inventory data quality.
- Supplier Relationships: Building strong relationships with suppliers can help retailers prevent stockouts. Collaboration with suppliers can lead to better communication, faster deliveries, and improved forecasting accuracy. This is particularly important in highly competed CPG categories where stockout can lead to consumers switching stores or brands.
- Demand Forecasting: Accurate demand forecasting is crucial to prevent stockouts. By analyzing historical sales data, market trends, and customer preferences, retailers can better predict demand and ensure adequate stock levels. Kloud9 partners with Relex to provide Demand Forecasting solutions by intelligently unlocking the potential to accurately envision future demand. [https://www.relexsolutions.com/solutions/demand-planning-software]
- Artificial Inventory Intelligence: In addition to demand forecasting, modern machine learning models can predict stockouts, particularly phantom inventory at significant accuracy. With over 90% accuracy in predicting phantom inventory driven stockouts, retailers can adjust fulfillment cycles and also account for inaccurate inventory data. AI and ML models can also be used to better assess inventory discrepancies stemming from supply chain issues such as delay in delivery, under staffed receiving of goods etc. More on AII
Stockouts can have a significant impact on the retail industry, resulting in lost sales, dissatisfied customers, missed opportunities, and impaired supply chains. However, by implementing intelligent AI approach, effective inventory management system, building strong supplier relationships, and improving demand forecasting, retailers can mitigate the consequences of stock-outs. By focusing on preventing stockouts, retailers can provide better customer experiences, improve sales, and ensure a more efficient supply chain.