Here’s a fun scenario for an e-commerce logistics manager: Let’s imagine you’ve spent years building a loyal customer base for your gourmet grocery box delivery service. The homemade, small-batch hot sauce supplied by your neighbor’s cousin is one of your top selling items. But now someone’s mentioned it on a popular podcast, the cousin is swamped with demand and you’re out of stock to fill this week’s orders. What do you do?
It hurts having to apologize when you can’t fill customer orders as promised. If you have to process refunds or partial credits in the back office, it only gets worse. In this post we’ll take a deeper look at how to avoid supply chain disruptions while also maintaining delivery efficiency. We’ll also offer five practical ways to prevent stockouts.
What are stockouts?
Stockouts happen when a business doesn’t have enough inventory to meet customer demand. The negative impacts include:
- Lost sales
- Lower customer satisfaction
- Poor customer experience and loss of loyalty
Frequent stockouts can damage your reputation and reduce your competitiveness.
All of this means stock runouts are a major operations challenge for delivery companies. But running out of products is avoidable! For some companies, the answer is outsourcing to a third-party logistics provider who has the resources and skills to manage the risk. This can be a costly solution, though, so another option is to adopt some best practices for predictable operations.
Causes of stockouts
Stockouts occur for both internal reasons — those you can control — and external reasons that are beyond your control.
- External causes of stockouts can cover a wide range of supply chain disruptions, from political instability to bad harvests. They’re challenging to handle, but you can still prepare for market unpredictability so you are protected when stockouts occur.
- Internal causes are often due to workflow management policies and processes. For example, staff shortages and ineffective training are common causes of stockouts.
Some of the more detailed causes of stockouts include:
- Ineffective forecasting: Ineffective forecasting happens when companies over- or underestimate demand. It can also happen if you lack visibility over your delivery operations.
- Delayed restocking: This often happens when there are sudden demand increases, like in our example of the podcast-famous hot sauce. Supply chain disruptions and shortages of raw materials can also cause longer lead times.
- Poor operations management policies: Outdated logistics management systems or troubled relationships with suppliers can cause delays and frequent stockouts.
- Tight working capital: Lack of cash can limit companies’ ability to pay suppliers on time, accommodate market variations and scale their operations.
- Supply chain disruptions: Pandemics, weather conditions, and politics can all disrupt supply chains. Companies cannot source products in time and movement restrictions can cause damage to goods in transit.
5 ways to to prevent stockouts
Here are five practical ways to prevent stockouts:
1. Track inventory levels
Delivery companies should keep accurate data on available stocks. That means updating inventory data in real time as products leave the warehouse or upon replenishment.
Manual inventory tracking can be challenging, to say the least! Companies can improve stock tracking by:
- Investing in scalable inventory management software to track stock levels. The system generates stock alerts or notifications when inventory drops, allowing for timely reordering.
- Integrating logistics platforms such as point-of-sale (POS) systems and e-commerce catalogs. For example, connecting barcode scanners with the POS means the system can update your inventory as employees scan barcodes on packages that are being shipped out. This prevents miscounting and enables better inventory control.
- Conduct regular stock counts to verify inventory records and correct discrepancies.
As you can see, technology is pivotal for solving supply chain problems. The global inventory management software market is predicted to reach 6 billion USD by 2032.
2. Forecast demand
Your business decisions and practices should be data-driven. For example, logistics managers can fix common out-of-stock patterns by:
- Checking market trends to enable better planning and predictable customer fulfillment
- Estimating seasonal variations in consumer demand. This can help to optimize safety stock levels and determine reorder points.
- Identifying fast-moving products and focusing on them over slow-moving products. This avoids overstocks as well as stockouts.
Implementing demand forecasting can help to ensure you maintain enough inventory to meet changing consumer demand and manage product turnover.
For example, Greenhouse Juice offers next-day delivery of its cold-pressed organic juices, even for orders submitted at midnight! Without a combination of accurate forecasting and efficient delivery management, they would struggle to meet ever-increasing demand for their products.
Data from inventory management systems can help to improve supply chain management. The collected data enhances supply chain visibility and makes it easier to estimate long-term demand.
With time, these companies can integrate advanced technology solutions based on market success and explore the prospects of artificial intelligence-enabled inventory management systems for demand planning.
3. Identify and work with reliable vendors
Supplier-related challenges are a common cause of inventory problems and delayed deliveries:
- Some suppliers take a long time to respond to client requests.
- Suppliers might withhold orders if payments are delayed.
- Returned or defective stocks can cause conflict.
- Suppliers might lack the financial capacity to fulfill orders reliably.
Working with a reliable vendor means fewer delayed deliveries. In turn, this means better customer experience, fewer cancellations and returns and less risk that perishable products will go bad.
Improving supplier management and delivery scheduling can make or break your business. For example, KFC had a chicken shortage in 2018. Supplier management issues led to the temporary closure of several outlets and KFC resolved the situation by changing the delivery partner.
As well as choosing reliable vendors and delivery partners, logistic managers should:
- Ensure the supplier has enough warehousing or production facilities to avoid stockouts
- Ensure they can handle peak customer demand
- Audit their facilities and return policies to prevent any mishaps.
4. Establish a backup plan
You can’t predict or control supply chain interruptions like regional and global geopolitical events, pandemics, or bad weather. But you CAN have a backup plan for when some kind of trouble happens — because it will!
Your backup plan should include identifying alternative suppliers. This is especially important for overseas partners who might struggle to meet demand if there are restrictions to movement.
Working with a backup supplier reduces delivery risks and stockouts. When identifying alternative suppliers, ensure:
- Their products meet quality requirements.
- They have the financial and technical capacity to handle varying market demands.
- The company offers competitive product rates.
- The supplier meets your company’s operating standards. Verify their delivery timelines. What do other customers say about the supplier, and what is their reputation in the industry? Do they have negative reviews on consumer platforms?
5. Optimize internal processes
Delivery companies are under constant pressure to streamline operating costs, while also keeping customer satisfaction. Look for ways to:
- Optimize lead times: Look for opportunities to streamline checkouts in stores (both online and offline) and fulfillment centers. Then use delivery management software to avoid delays and late deliveries.
- Track orders: Monitor all your customer orders to avoid mismatches in inventory which can result in stockouts. You’ll also need to track incoming stock from your suppliers. Use an inventory management system for improved order and inventory management.
- Follow up on unpaid invoices: Paying suppliers on time secures loyalty and helps put you at the front of the queue if there are ever shortages. Use your inventory management software to track invoices and pay suppliers based on when they delivered.
- Reconcile inaccurate inventory: Ensure digital inventory records match physical product counts. Keep inventory records updated to avoid listing obsolete stock.
- Streamline inventory management: Use inventory management software to enhance order and vendor management, and to improve access to sales and distribution data.
- Improve fleet management: Fleet maintenance programs increase vehicle availability, and fleet tracking can help with route planning and vehicle allocation.
Today’s technology solutions are affordable even for small to medium-sized businesses. Choosing the right ones can go a long way to improving internal processes and developing employee-focused policies that reduce turnover and end stockouts. These measures guarantee business continuity and maximize bottom lines.
Lessons from Greenhouse Juice on managing stockouts
Greenhouse Juice sells organic, cold-pressed juices across Canada. Their products have a short shelf life, so fast delivery is a priority.
As demand for home delivery soared during the pandemic, Greenhouse Juice was challenged to scale production to avoid out-of-stock products. They implemented a range of measures to address stockouts:
- Retail store partnerships: Merchandising in retail stores has helped get Greenhouse Juice products to a wider customer base with limited impact on its distribution systems.
- Data-driven forecasting: They developed a retail execution platform to track changes in consumer habits and improve access to sales data.They use this data to optimize stock levels in stores and to help develop new products. Technological solutions also automate operations and reduce human errors.
- Communication automation: Routific’s delivery management system sends automatic notifications to customers on the status of orders.
The merchandising manager attributes the success of the company to data-driven market expansion.
Technology is the key to managing stockout risk
Keeping the balance between efficiency and customer service is never easy, and stuff happens. But it is possible to massively reduce your risk of stockouts by using technology to identify common out-of-stock patterns, estimate seasonal product demands, and predict long-term shifts. That, combined with choosing reliable vendors with financial capacity to fulfill orders, will help to protect your bottom line when supply chain troubles hit.
Will Schneider is the founder of InsightQuote, a match-making service for B2B services, and writes informative posts about fulfillment services at Warehousing And Fulfillment. He is passionate about helping businesses find the right solutions to improve their operations. When not working, Will enjoys coaching youth basketball.
