Darren Gilbert Dec 6, 2017 5:06:47 PM 14 min read

An Out of Stock Can Cause A Lot Of Damage. Here's How to Fix it

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It must be said: if your stores run out of stock, you won’t be popular with your customers. Of course, you should expect that. You’re meant to provide for them and if you don’t deliver, you can’t complain. Often, that’s motivation enough to set about preventing it. But that doesn’t mean it no longer happens.

To be fair, there are some instances where it’s not entirely your fault. Unforeseen circumstances can arise. But this is not about shifting the blame. Rather it’s about finding out where you can improve so that you can do something about it.

What is an Out of Stock?

Before we go any further, it’s important to take a look at what an out of stock is. It’s fairly easy to understand. It simply refers to a product that is not immediately available for a customer to buy in a store. In short, when a customer walks in, expecting to find the product, they won’t find it.

There are few things more frustrating for your customer than such a scenario.

As for the damage it can cause, you only need to look at their behaviour upon finding out that you don’t have any stock of a product they were expecting to find in your store. There are one of two ways that they’ll behave. Either they won’t mind. In that case, they’ll simply buy another product, which can act as a substitute for the one you don’t have. That’s called high transferable demand.

On the other hand, they’ll walk out of your store in frustration because they’re not prepared to buy a different product. That’s low transferable demand. Mind you, whether a product has a high or low transferable demand is entirely up to the customer and their tastes. It doesn’t depend on price.

For example, if a customer only drinks one brand of cold drink, and you don’t have any stock, they won’t buy anything else. They’d rather find their favourite brand elsewhere. That is, of course, the last thing you’d want them to do.

And that is where this article comes in. While we’re pinpointing reasons why stores can end up with out of stocks, this is more about finding viable solutions.

Here are three reasons why they happen and what you can do to fix them:

Reason #1 Your planograms aren’t built properly (or they are missing entirely)

As we’ve mentioned countless times on this blog before, planograms are diagrams or drawings that indicate how and where your products should be placed on your shelf. Of course, they are more than just visual representations. Planograms wield a certain power and they need to be handled with care.

Why? Simple: when they’re not treated properly, they can cause an out of stock. And that can happen in a variety of ways.

Firstly, there is the risk of running out a product if you don’t use the correct retail data for your planogram. Let’s say, for example, you’ve just built a planogram for your main store and you want to build planograms for all of your other stores. Good idea. But a few of your other stores happen to be in different provinces. You can’t simply use the same data for all of your stores. There are different buying habits to consider.

If you do decide to go that route, your planogram won’t reflect the true behaviour of your customers. As a result, you’ll find yourself buying too much of one product, which won’t sell and too little of the product that sells the most.

Secondly, you run the risk of out of stocks if you bring in your personal opinion into the mix. Building a planogram is an objective exercise that looks at the facts. There are also rules and if they aren’t followed, you can find yourself sitting with a planogram that causes issues later one. A typical rule, for example, is to equalise your days of supply (DOS).

Imagine you have a product that sells so well that it needs two shelves to fit the average days of supply. But you decide you only want to give it a half shelf and ignore the suggested days of supply. Not only will this item move quickly off the shelves, but you’ll be continuously repacking your shelf. And, because the purchase order made didn’t consider days of supply, you’ll soon run out.

It also needs to be said that if a planogram is created on the whim of an individual, and doesn’t follow any rules, you could have a customer who is confused when they arrive at the shelf and leave without buying anything.

What do you need to build better planograms?

So how do you build the perfect planogram? Or at least fix one that is poor and not performing at it’s best?

As we’ve already mentioned, it’s fairly straight-forward. You need data. Data is the most valuable element for any planogram that you build because it houses all the information you need to fill your shelves correctly. After all, without it, you’d be stocking your shelves blind.

But what kind of data do you need?

There’s your sales data, which helps you determine how well a product has sold previously. You’ll also be able to figure out how much shelf space your product deserves. There’s your product data, which ensures that the correct products are in the correct spots on the shelf. And then there is your fixture information, which includes your fixture types and dimensions.

More than that, when it comes to building better planograms, it’s important that you even out your days of supply. Retail space planners work with an average days of supply for the whole gondola. To ensure that the shelves all empty at roughly the same time, which means you don’t have to replenish your stock at random intervals, the days of supply for each products must be as close to that average as possible.

Just to note, your days of supply average depends largely on your category. For example, if you stock Fresh Milk, you can expect to replenish your shelf every two to five days. If you also stock Canned Vegetables, your average days of supply may be 30 days.

Reason #2 You have no control over your inventory

When it comes to your inventory, if you don’t have control of it, you’re in trouble. And we’re not talking about a little bit of trouble that you can simply brush aside. If you don’t have full control, you will quickly find your stores suffering from serious problems. Like out of stocks.

When your space planning efforts are not in sync with your inventory planning efforts, the only possible outcome is an out of stock. That might sound melodramatic, but let us explain.

By not having a space planning software that can manage the supply and demand process of inventory from a warehouse to a store, the stock sent out to your stores could be either too little or too much. That will, of course, mean that while one store is running out of stock, another is full of dead stock. The result should be obvious: lost sales for both stores as well as the wrong stock is in the wrong store.

What do you need to do to have better inventory control?

As stated above, when it comes to having better control, you need to ensure your space planning efforts are connected to your inventory planning efforts. More than that, you must ensure that your inventory management data is integrated.

And it’s worth looking at DotActiv’s integration process to explain further.

DotActiv has an application which is known as the DotActiv Data Import Utility as well as a DotActiv Data Import Windows Service, which imports data from SQL staging tables. The Data Import Utility is used to bring in transactions facts data such as your sales, units, indicators and the like.

Meanwhile there is also the Planogram Import Utility, which imports all your space planning data. That is, your X and Y Facings, Capacity, Days of Supply and so on. It collects the planogram and then extracts all the necessary causal data. This data is then written directly into the database.

How this helps with your inventory control is that once extracted, your data is transferred to a replenishment engine. And this engine, using your retail data, orders the precise stock you need. That means you won’t have to worry about any issues that arise from having an out of stock.

Reason #3 You’ve underestimated the demand growth trends for a product, sub-category, segment or sub-segment

Picture this: You’re making sales left, right, and centre. In fact, you’ve just had a look at your figures for the past two weeks and you’re up by 10%. You’ve also improved your overall category profitability and you’re envisioning your strongest month yet. What could go wrong?

Surprisingly a lot. Like the fact that along with all of these sales, you realise that you’ve underestimated consumer demand. And you know that soon you’ll be out of stock. Big problem.

What could be even more of a problem is that the next stock order is only coming in at the end of the month. And you don’t have enough capital to order more. Short of rearranging the stock on your shelf to ensure it doesn’t remain open, there isn’t much you could do.

And by the way, giving more facings to stock that doesn’t deserve it can prove just as problematic.

What can you do to meet consumer demand?

To meet consumer demand - and of course not face out of stocks - you need to ensure you have the right stock at the right time and right place. How do you do that?

One way is by building a localised assortment plan. This can reduce out of stocks since you’re meeting demand head-on. But that’s not the only way. There is also your merchandise plan, which is built on sales forecasting. By using past performance data, you’ll stand a better chance at meeting customer demand and avoiding the problem of an empty shelf.

More than that, you’ll catch anything before it becomes a problem. For example, when ordering your stock for next year, you know that the high sales growth figures for a particular seasonal product meant you had to order more often. You can thus plan to order more stock of that specific product than you did previously to meet that expected demand.

A final way is to look at the days of supply on your planogram. To ensure that your days of supply remain an at optimum level, you need to factor in when an item was previously out of stock. Similar to your sales forecasting, in a way. Seasonality also plays a role here.

For example, you’ll know that during Christmas last year, you sold more stock of a particular range of products. To fulfil that demand, it’s worth creating a seasonal planogram.

Also, by merchandising your gondolas so that all of your products deplete at the same time, you won’t have to spend your time replenishing your shelves too often. 

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Darren Gilbert

With over 10 years of writing and marketing experience, Darren joined DotActiv in 2017 as a content writer where he was responsible for producing blogs, Ebooks and more. He has since worked himself up to the role of content manager, where he oversees all and any content produced by the company.