What is Out of Stock?

Out of stock is an inventory condition, stating that an item is not currently available for sale or use. An out of stock condition can cost a company a sale, so these items are usually closely monitored. When inventory is not available, a business may offer to sell a comparable item, or will backorder goods until they are available at a later date.

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What Triggers an Out of Stock Condition?

There are several situations that can trigger an out of stock condition. Here are some of the most common:

Insufficient safety stock. An out of stock situation can arise when an inadequate amount of safety stock has been included in the planning system. It can also arise when customer orders have been higher than expected, so that all on-hand inventory is depleted. This is especially common for fashion items, which may be subject to sudden spikes in demand for short periods of time.
Recordkeeping errors. Items can also be out of stock when there are errors in the inventory records, where the records state that goods are still on hand when this is not really the case. This error can arise when goods are stolen, destroyed, or incorrectly labeled as something else. This condition is most common when a business does not regularly verify its inventory records with a physical count.
Delayed receipts. There may have been a delay in the receipt of a replenishment delivery from a supplier, and there is not sufficient safety stock to cover the shortfall. It is also possible that inventory has been received and is in storage, but has not yet been logged into the system.
Delayed stocking. Goods may not yet have been brought forward from the stockroom and replenished on shelves; this is especially common when a retail store is short on staff or its personnel are not adequately trained.
Insufficient working capital. A business may not have sufficient funding to pay for an adequate stock of goods, and so it deliberately maintains low stock levels. In these situations, there may only be enough money to pay for the most popular items with high stock turnover; the inventory levels for all other items are deliberately kept very low, forcing customers to wait until special orders to suppliers are fulfilled.
Product discontinuance. A business may discontinue an item, perhaps because it is being replaced by a newer version; once the last unit has been sold, this item is permanently out of stock, and is withdrawn from the company’s marketing materials and catalog. At this point, customers can only access discontinued items on the aftermarket, in the form of used goods.

Customer Responses to Out of Stock Conditions

When customers encounter out of stock conditions, they will likely look elsewhere to buy the goods in question. This can result in a business permanently losing their patronage. Alternatively, if the goods are not needed immediately or are not considered critical, customers may simply elect to wait until they are back in stock. Or, they may buy substitute products from the same company. No matter which of these options is taken by customers, the net impact will be a lower opinion of the company, which reduces customer loyalty.

How to Reduce Out of Stock Conditions

There are several ways to reduce out of stock situations. One approach is to conduct a daily review of store shelves, to manually verify if there are any empty spots that require a replenishment order. Another approach is to increase the frequency with which replenishment orders are sent to suppliers. Yet another option is to increase the amount of safety stock retained on the premises. A fourth option is to increase the headcount assigned to restocking shelves from the reserve inventory kept in the stockroom. You might also try increasing prices, which reduces customer demand to match the inventory levels you have on hand. Also, consider having a backup supplier, in case your primarily supplier cannot ship a replenishment order on a timely basis. Finally, consider reducing the number of stock keeping units, so that less effort is required to monitor inventory levels for the remaining items kept in stock.