Unsatisfied demand that leaves and turns to competitors due to stock outs in production. Let’s see the solution to prevent and eliminate stock outs by maximizing the service level.
Whatis a stockout?
A stock break, in English stock out or out-of-stock, occurs when the stocks of a certain item in the warehouse or at the point of sale run out.
What are the risks of a stock out?
The occurrence of stock outs is as dangerous as that of inventories. The out of stock, in fact, can cause a decrease in turnover resulting from the loss of sales due to the absence of the product desired by the customer.
In these cases, the loss of sales is added to the loss of the customer as the demand is directed in the short term to competing products and brands and then to be able to decide to definitively replace the initial supplier with one of its competitors.
In addition to the aforementioned consequences, there is a damage to the image and loyalty of the customer, due to the negative word of mouth of these unsatisfied customers.
Another consequence, this time internal to the company, is due to the fact that stock outbreaks are typically resolved in the short term with the release of urgent orders that are added to normal production. In fact, orders characterized by this urgency have results on the shiftwork of operators (who often have to compensate through the use of overtime) and on the creation of a general climate of stress, lack of control and rush to solve the problem urgently. A stock out resolved by urgency can easily lead to another stock out.
What causes a stockout?
The main cause that leads to the occurrence of stock out is the difficulty of predicting market demand and evaluating its production feasibility.
Inadequate decision-making leads many companies to decide on the quantity to be ordered at the time the order occurs. A properly designed inventory management system instead calculates the quantity to be ordered as an arithmetic result of the main inputs (such as lead time, customer orders, order reliability, required delivery time, and security level).
The difficulty in inventory management resulting from incomplete visibility of quantities in stock and imperfect management of expiration dates.
The stock out itself is also often the cause of further stock outs. Trying to remedy the first by urgency and placing new orders risks delaying the production orders expected in a given period, risking further stock out.
How do you eliminate stockouts?
In the short term, products requested by customers and identified as not available in stock are produced with the release of urgent orders that production must meet unexpectedly and as a priority compared to others already scheduled and scheduled.
In any case, this is an issue that must be resolved urgently and given priority to prevent the occurrence of these disruptions that have repercussions on the entire supply chain. APS (Advanced Planning and Scheduling) software allows visibility into production and warehouse, enabling the possibility of avoiding stock outs. The visibility of orders, orders in production and those already scheduled allows us to see if such disruptions would occur in the future, thus allowing us to reorder in time the quantities necessary to maintain a high level of service to customers.
Find out how Vimar eliminated stockouts, reducing warehouses
Read how Vimar, a famous electronics company, eliminated stock outs by reducing stock thanks to APS CyberPlan software. To read the article: Click here.
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