Out-of-stock (OOS) situations present a significant challenge for ecommerce businesses, impacting customer satisfaction and revenue. When items are unavailable, customers are put off and either take their business to competitors or completely stop shopping from the brand with the out-of-stock products.
Efficiently managing these scenarios is crucial to maintaining a loyal customer base and ensuring smooth operations. Here are some strategies to deal with out-of-stock situations effectively.
Strategies for Dealing with Out-of-Stock Challenges
Supplier Relationships and Diversification
Building strong relationships with suppliers is essential for managing out-of-stock situations. Reliable suppliers who understand your business needs can provide timely restocks and support. Additionally, diversifying your supplier base reduces the risk associated with relying on a single supplier. If one supplier experiences delays or shortages, alternative suppliers can fill the gap, ensuring a steady supply of products.
Apple maintains strong relationships with multiple suppliers for its components. This diversification ensures that if one supplier faces delays, others can step in to fulfill the demand, reducing the risk of stockouts for products like iPhones and MacBooks.
Safety Stock and Buffer Inventory
Maintaining safety stock, or buffer inventory, is a common strategy to handle fluctuations in demand and supply chain disruptions. Safety stock acts as a cushion, absorbing unexpected spikes in demand or delays in restocking. The amount of safety stock required depends on factors such as lead time variability, demand variability, and service level targets.
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Walmart keeps a safe stock of essential products like toiletries and food items. This buffer inventory helps them manage unexpected spikes in demand, especially during events like natural disasters or pandemics.
Backordering and Pre-Ordering Options
Offering back-ordering and pre-ordering options can mitigate the impact of out-of-stock situations. When a product is out of stock, allowing customers to place orders for future fulfillment assures them that they will receive the product once it is available. Transparent communication about expected restock dates and regular updates on order status are crucial to maintaining customer trust.
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When a new gaming console like the PlayStation 5 is out of stock, Sony allows customers to place pre-orders. Customers are informed of the expected delivery date, ensuring they secure a unit once it’s back in stock.
Dynamic Pricing and Substitution
Dynamic pricing involves adjusting product prices based on stock levels and demand. For instance, increasing prices slightly as stock levels dwindle can slow down sales and extend the availability period. Additionally, offering product substitutions or recommending similar items can prevent customers from abandoning their purchases altogether. Personalized recommendations based on customer preferences can enhance the likelihood of acceptance.
During peak seasons, Amazon adjusts the prices of high-demand products dynamically. If a product is running low, the price might increase slightly to manage demand until restocking. Additionally, they suggest similar products to customers if their preferred item is out of stock.
Customer Loyalty Programs
Implementing customer loyalty programs can turn an out-of-stock situation into an opportunity to strengthen customer relationships. Offering rewards, discounts, or priority restocking for loyal customers encourages repeat business. Additionally, providing exclusive access to new products or early notifications of restocks can create a sense of exclusivity and appreciation.
Sephora’s Beauty Insider program rewards loyal customers with points that can be redeemed for discounts or exclusive products. If a popular item is out of stock, members might receive priority restocking notifications or exclusive access to new stock.
Inventory Audits and Cycle Counting
Regular inventory audits and cycle counting help maintain accurate inventory records. Physical audits involve manually verifying stock levels, while cycle counting involves counting a subset of inventory on a rotating basis. Identifying discrepancies and resolving them promptly ensures that the inventory data aligns with actual stock levels, reducing the likelihood of stockouts.
Target conducts regular inventory audits and cycle counts to ensure that their physical stock matches its inventory records. This helps them identify discrepancies early and reduce the chances of stockouts.
Dropshipping and Third-Party Logistics (3PL)
Dropshipping and third-party logistics (3PL) partnerships can alleviate the burden of managing inventory and out-of-stock situations. In dropshipping, the supplier ships products directly to the customer, eliminating the need for the retailer to hold inventory. 3PL providers offer warehousing, fulfillment, and shipping services, enabling businesses to scale their operations and maintain optimal inventory levels.
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Shopify store owners often use dropshipping suppliers like Oberlo. When a product is sold, the supplier ships it directly to the customer, eliminating the need for the retailer to hold inventory and reducing the risk of stockouts.
Contingency Planning
Developing contingency plans for out-of-stock situations ensures that businesses are prepared for unexpected disruptions. Contingency plans outline steps to take in case of supply chain issues, sudden spikes in demand, or other unforeseen events. These plans should include alternative suppliers, emergency restocking procedures, and communication strategies to keep customers informed.
Starbucks has contingency plans in place for supply chain disruptions. During a coffee bean shortage, they have alternative suppliers and stockpiles to ensure they can continue to meet customer demand without significant interruptions.
Training and Empowering Staff
Training and empowering staff in inventory management practices contribute to efficient operations. Employees should be knowledgeable about inventory systems, demand forecasting, and customer communication. Empowered staff can make informed decisions, resolve issues promptly, and provide excellent customer service during out-of-stock situations.
Costco invests in training its employees on inventory management and customer service. Empowered staff can make informed decisions and resolve out of stock issues promptly, ensuring a smooth shopping experience for customers.
Leveraging Technology and SaaS Software
Advanced technologies integrated within SaaS software can enhance inventory management and predict out-of-stock situations. Many platforms like 42Signals and its product availability analytics, come with AI algorithm enablement, which analyzes vast amounts of data to accurately forecast demand. This automation streamlines replenishment processes, ensuring timely restocks and reducing human error.
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A leading fashion company uses 42Signals to determine when its stocks are likely to run out and also to understand competitor inventory levels. When a certain competitor product is sold out, the brand runs special promotions and sales on a similar product to increase orders. They are also able to anticipate and distribute stock between locations effectively.
Conclusion
Out-of-stock situations in ecommerce are inevitable, but with proactive strategies and efficient management, businesses can minimize their impact. A well-managed inventory system ensures a seamless shopping experience, fostering customer loyalty and driving long-term success.
For more information about managing your e-commerce inventory optimally, schedule a demo with us today.