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. The occurrence of stock out is as dangerous as that of inventories, waste in production and various inefficiencies.
The 5 costs of stock outbreaks in production
Of all the stock costs, stock out is the most difficult to estimate. So let’s see what the main risks of the stock out are:
1. Decrease in turnover: Out of stock can cause a decrease in turnover resulting from the loss of sales due to the absence of the product desired by the customer. According to average market studies, about 20% of consumers who do not find the product they were looking for, buy the same product but from another brand;
2. Increased inventories: companies often respond to stock outs by increasing warehouses and risking creating over-stock situations. Greater warehouses mean greater fixed capital. In addition, in some sectors it is also necessary to take into account the shelf life, that is, the life span of a product (how long a product can remain stored before use), which varies according to the type of production;
3. Emergencies: these are typically resolved in the short term with the release of urgent orders that are added to normal production and often move production orders forward in time to restore the stock of other items. This type of response often creates other urgencies, confusion in production, and the risk of further stock outs.
4. Risk of penalties: in some cases, a stock out may incur a penalty and therefore additional costs in addition to those described above.
5. Loss of image and trust on the part of customers: the loss of sales can be 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 its competitor. This consequence is likely to lead to a loss of image and trust on the part of customers that carries with it the cost of lost future sales and marketing campaigns to regain the company’s image.
How to eliminate stock outs?
What are the solutions to eliminate stock outs and save money? What are the solutions used by Italian companies? We talk about this in the following article How to eliminate stock outs in manufacturing companies.
