Not all businesses sell a physical product, but many businesses have inventory that is made up of materials used as a part of a service provided to a customer. In either case, these products and materials need to be accounted for in the warehouse, when they are moved to job sites, and when they are used for a client job or within the production of a larger product.
The Impact of Stockouts
The impact of a stockout can easily affect a customer's experience and loyalty. When a returning, or potential, customer experiences a stockout, there are typically three possible outcomes to the situation.
The customer places the item on backorder. While the sale is made and money is coming in, the business may need to offer a discount or free shipping to maintain a level of customer satisfaction. Backorders can be tricky due to the unknowns and many factors that impact a product returning into stock in a timely manner.
The customer waits for the item. In this scenario, the customer is still committed to the item from the company. However, with social media and other outlets at a customer's fingertips, expressing displeasure due to a wait can lead to a bad review. This impact can reach beyond a single customer.
The order is canceled. In a situation like this, all is lost. A potential customer may simply never return and a sale is lost, due to a stockout. While loyal customers may return or be aware of items with common stockouts, a new customer might be lost forever.
Preparing For and Handling Stockouts
Stockouts for certain things can be inevitable. Carrying an excessive amount of inventory can be one way to prevent a stockout, but that comes with its own financial burden and is often not a realistic solution to the issue.
If a stockout is going to happen, have a plan in place can help minimize the effect it will have on the business. Prioritizing inventory items against how important they may be to a customer, how important that customer is to the business, and the cost of stocking that inventory. For example, an automotive mechanic may be shocked and upset if their parts supplier ran out of universal windshield wiper blades, but might be more understanding of a special type of engine part not being in stock. Since the cost of carrying those wiper blades is low, then that can become a high priority item. In a distributor scenario, stocking out of a high-priority product would mean a loss for the customer, which trickles down to a delay for an end-user.
As mentioned above with backorders, a business needs to be aware of how responsive the supply chain is for different things. Having an out-of-stock item that is typically replenished within a short timeframe may cause some scrambling, but a product that may take weeks to restock may cause other frustrations and possibly passing on deals to customers to maintain satisfaction. Being aware of these lead times and planning accordingly can save you many headaches in the long run.
How Inventory Control Can Prevent Stocking Issues
Utilizing basic business software, Excel, or even manual pen/paper entries to keep track of inventory will quickly be outgrown and eventually start causing setbacks for a company. Switching to a centralized system, like NetSuite, grants everyone from the accounting department, to the warehouse, access to real-time data. At the end of the day, multiple departments within a company have their hand in the inventory. Simpler software and manual inventory tracking are restrictive and do not allow for the level of insight needed to be able to grow.
Integrating software like NetSuite among the different systems within a company will help prevent possible stockouts by providing supply chain insights, demand predictions and help increase fulfillment speeds. An inventory control system that is integrated with the Customer Relationship Management (CRM) system can help to identify how stockouts are impacting customer satisfaction and customer loyalty. Finally, an inventory control system that is integrated with a financial application can go a long way in answering questions like how much stockouts are costing by measuring customer lifetime value, the cost of each item, and the responsiveness of the supply chain.