How to Never Run Out Of Stock And Lose On Sales

Harvard Business Review got it right – Stock outs cause walkouts. Nearly half of all consumers who encounter an ‘out-of-stock’ sign will actually buy a similar product through other avenues. This is unforgivable, because not only do retailers lose customers, they do so because of some very basic mistakes.

Inaccurate demand and supply forecasts, ordering products too little too late and mismanaged or lost inventory are still major causes for being out of stock. With such a steep price- that of customer loyalty- attached to it, isn’t it time we manage our inventory metrics better?

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In this article, we discuss five ways by which you can say with a good degree of certainty that you won’t run out of stock and lose out on sales.

1. Track Your Sales Data

Sales metrics are very straightforward to track in today’s times. Every order placed on an online channel is recorded on that channel. Even in stores, the concept of manual billing is obsolete now. With the help of barcode readers and POS systems, we know exactly how much we have sold in a time period.

By using these numbers, you can track how every single one of your products performs over time. This lets you make decisions about your product mix that help avoid dead stock. It also helps you plan for when you must reorder certain products in order to ensure a continuous supply for the customers.

Be sure to also look at your online and offline sales data separately to see trends. These trends will help you decide how much product to store in a warehouse and what quantities to send to each of your outlets such that the product is always available for those who wish to buy it.

2. Analyze Data Over Long Time Periods

Data analysis is a mean temptress. Many business owners obsess over data once they begin to use it with some benefit. However, the conclusions you draw from data are entirely your own. The decisions you then base on these conclusions will impact your business significantly.

For example, you may notice a sudden spike in sales for a certain product and come to the conclusion that you need to stock way more of it that you currently hold. However, it may simply be a spike and nothing more.

By analyzing data over a longer time period whenever available, you will be able to see data with a much broader perspective. You will be able to accurately identify which demand is short-lived and which one has more sustained interest. Apart from sales data, you can also look at Google Trends for more information.

3. Calculate key metrics

Some products just sell more during a certain time period. For products like umbrellas and raincoats, the case is obvious- people buy them in the monsoon season.

However, sales for other products may be less obvious. Retailers who sell globally often encounter this conundrum because they do not understand the local culture of every country they sell in.

By using historical sales data, you can calculate your reorder levels and safety stock for each time period when you expect there to be a spike. If, as a home decor retailer, you noticed spikes in sales during November last year, begin your calculations for this year by August. Here’s how you can calculate the reorder level for a certain time period:

In the past year, take the average sales made during a certain month for a product. It is calculated as the sum of daily sales during a thirty day period, divided by 30. The lead time is the amount of time it takes for you to receive a product from a vendor, once you raise the purchase order.

By multiplying these two, you can set the reorder level for a certain time period. Be sure to adjust it from time to time.

The safety stock is meant to protect you from unexpected sales spikes. This is how it is calculated:

In essence, safety stock calculation is learning to plan for the worst case scenario- when you have orders flowing in but your vendor takes longer than expected to fulfil a purchase order. You can read more about these calculations here.

4. Maintain A Good Relationship With Suppliers

Your customer relationships depend on your supplier relationships. This does not seem obvious at first. What has a supplier got to do with the consumer?

A good, loyal supplier can deliver your products well on time, can reduce the lead time on your products, give you credit when an unexpected spike happens and help you maintain your stock at just the right levels throughout.

A disgruntled supplier can delay your shipment, be unresponsive, hold out on supply until you clear the bills and even jeopardize your business by promising delivery of goods and not doing so. You cannot depend on them to do business.

In most cases, suppliers honor their contracts quite well. However, having a good professional relationship with them ensures that one aspect of your business is always sorted. All you need to do is raise a purchase order and sit back, knowing that your order will be fulfilled as soon as possible.

As a result, you can completely avoid the ‘out-of-stock’ risk that looms over the heads of many retailers.

5. Review Your Plan

A good plan is one that is always up for review. Once you have tracked your data and made stock decisions based on them, take a step back and evaluate.

How has a certain inventory calculation impacted your business? Has it caused you to overstock, or has it driven you to the verge of going out of stock? And always ask why. Why did a certain decision cause that particular outcome? By evaluating these parameters, you can set yourself up to perform better this time around.

With enough iterations, every system gets better, decision making included. With a strong review practice, your inventory decisions will begin to reflect the ground realities much better.

Since you no longer need to hang the ‘out-of-stock’ board, you will find improved brand loyalty, and perhaps even customer recommendations driving sales to your channels. As you scale your retail business organically, be sure to keep calculating reorder levels and safety stock in order to ensure continued sales and great service.