A stockout, or out-of-stock (OOS) event is an event that causes

inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying the sh ...

to be exhausted. While out-of-stocks can occur along the entire

supply chain In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, activ ...

, the most visible kind are

retail Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and th ...

out-of-stocks in the fast-moving consumer goods industry (e.g., sweets, diapers, fruits). Stockouts are the opposite of

overstock Overstock, excessive stock, excess2sell, B-stock, or excess inventory, is the result of poor management of stock demand or of material flow in process management. Excessive stock is also associated with loss of revenue owing to additional capita ...

s, where too much inventory is retained.

Extent

According to a study by researchers Thomas Gruen and Daniel Corsten, the global average level of out-of-stocks within retail fast-moving consumer goods sector across developed economies was 8.3% in 2008. This means that shoppers would have a 42% chance of fulfilling a ten-item shopping list without encountering a stockout. Despite the initiatives designed to improve the collaboration of

retailer Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, an ...

s and their suppliers, such as Efficient Consumer Response (ECR), and despite the increasing use of new technologies such as

radio-frequency identification Radio-frequency identification (RFID) uses electromagnetic fields to automatically identify and track tags attached to objects. An RFID system consists of a tiny radio transponder, a radio receiver and transmitter. When triggered by an electrom ...

(RFID) and

point-of-sale The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...

data analytics Analytics is the systematic computational analysis of data or statistics. It is used for the discovery, interpretation, and communication of meaningful patterns in data. It also entails applying data patterns toward effective decision-making. It ...

, this situation has improved little over the past decades.

Causes

Recent surveys on retail out-of-stocks suggest that instore operations are fundamental to reducing retail out-of-stocks.Gruen, Thomas W., Daniel Corsten and Sundar Bharadwaj (2002)
''Retail Out of Stocks: A Worldwide Examination of Causes, Rates, and Consumer Responses''
Washington, D.C.: Grocery Manufacturers of America Around 70-90% of stockouts are caused by defective shelf replenishment practices, as opposed to the 10-30% resulting from the upstream supply chain, such as a shortage of supply from a supplier. This broad knowledge offers retailers the opportunity to improve on-shelf availability through internal measures. However, it requires a detailed understanding of the causes of out-of-stocks. A shortage of working capital may limit the value of orders that can be placed each month. This could be caused by poor

cash flow management Cash flow forecasting is the process of obtaining an estimate or forecast of a company's future financial position; the cash flow forecast is typically based on anticipated payments and receivables. See Financial forecast for general discussion ...

or other inventory issues such as too much cash tied up in high levels of excess.

Shopper response

Stockouts frustrate shoppers and force them to take a number of corrective actions that are beyond the retailer's control. Understanding how consumers respond to stockouts is therefore the starting point for retailers who wish to improve on-shelf availability. When shoppers are unable to find an item that they had intended to purchase, they might switch stores, purchase substitute items (brand switch, size switch, category switch), postpone their purchase or decide not to buy the item at all. Although these responses differ in severity, each entails negative consequences for retailers. Stockouts cause lost sales, dissatisfy shoppers, diminish store loyalty, jeopardize marketing efforts, and obstruct sales planning, because substitution disguises true demand. Moreover, shopper surveys reveal stockouts to currently be the most prevalent annoyance to shoppers. Shoppers spend a considerable amount of time looking for and asking for out-of-stock items. Shopper response to stockouts has been investigated by researchers with respect to cognitive response (e.g. perceived availability), affective response (e.g. store satisfaction), behavioral response (e.g. brand switching) and aggregated response in terms of category sales effects. Studies find shopper response to out-of stocks depends on brand-related antecedents (e.g. brand equity), product and category-related antecedents (hedonic level), store-related antecedents (e.g. service or price-oriented), shopper-related antecedents (e.g. shopper age) and situational antecedents (e.g. purchase urgency).

Impact

Depending on the shopper response to an out-of-stock, manufacturer and retailer incur various losses. Both manufacturer and retailer face a direct loss of the potential sale when a consumer faces an out-of-stock because the shopper purchases the item at another store or does not purchase it at all. Additionally, when a substitution is made, the retailer also loses an additional portion of the potential sale because the shopper tends to switch to smaller and/or cheaper substitutes. In addition to the direct losses, both the retailer and the manufacturer incur additional indirect losses due to decreased customer satisfaction that results in less overall reliance on the particular retailers and brands. When an out-of-stock leads to purchase at another store, this provides the consumer an opportunity to try a different store. Consumer behavior theory argues that trial precedes adoption, and, thus, an out-of-stock sets the stage for possible permanent store switching. When an out-of-stock leads to purchase of a competing brand, the consumer trial can lead to possible permanent brand switching as well. Research findings show that a typical retailer loses about 4 percent of sales due to having items out-of-stock. A loss of sales of 4 percent translates into an earnings per share loss of about $0.012 (1.2 cents) for the average firm in the grocery retailing sector, where the average earnings per share, already is about $0.25 (25 cents) per year.

Identifying and reducing retail out-of-stocks

Identification of stock levels can reduce out-of-stocks. The traditional method is to perform a manual audit of the store and manually look for "gaps" on the shelves. Due to differing sales velocities and replenishment schedules, the effectiveness of manual stockout audits depends heavily on their frequency and timing, and on avoiding human counting errors. A second method makes use of point-of-sale data or, more specifically, scanner data. Based upon historical sales data, the latency period between sales is taken as a gauge of whether an item is on the shelf. It is a preferred method for investigating fast-selling retail items, such as soda cans. Out-of-stocks may also be identified by using inventory data, depending on its accuracy.Raman, A., DeHoratius, N. and Ton, Z. (2001), "Execution: the missing link in retail operations", California Management Review, Vol. 43 No. 3, pp. 136-52. Finally, various types of technology, such as RFID, shelf stoppers and weight or light sensors, can be used. However, these technologies are so far not equipped to monitor the condition of the retail items (e.g. undamaged labels).

References

{{Authority control Scarcity Inventory