If you’re losing sales due to being out of stock, focus on demand forecasting

Late deliveries and lost revenue are high priority problems to solve. When you don’t have on-hand inventory to ship on time, your customers go elsewhere to get what they need. This can impact custom orders too, when your manufacturing or construction depends on raw materials being in stock. Today’s customers want instant gratification.

What causes companies to habitually run out of stock?

The main reason is they cannot accurately forecast demand for each item.

You want to avoid tying up too much cash in inventory but as a result you may end up not buying enough of some products. Or, you buy more of some items than you need, which reduces the amount of cash you have to restock other items you’re short on. Also, trends change and products become more popular or less popular. Strong and weak market conditions change customer spending.

How can you avoid inventory stock-outs?

Analyze historical sales trends per item and set reorder points so you can proactively order before items run out. Establish a process to frequently check for upcoming reorder points.

Assess your “inventory turn rate” for each item, i.e. how many times per year you sell through it. A 10x turn rate means 10 times per year; .5 means once every two years. Compare your turn rates with the amounts you have on hand, and establish min and max amounts to order going forward.

What if it’s overwhelming to calculate and monitor reorder points?

Automation solves this when you have thousands of items or a more complex business that makes it impossible to manage these calculations in Excel. We can set up an accounting and ERP system to automate it with a great ROI, making it super-easy to manage.

For example, we helped a wholesale distributor that was losing revenue because they frequently ran out of stock of items and thus couldn’t sell more. By adding handheld remote scanners in their warehouse to keep their system up to date with real-time counts, and developing demand forecasting algorithms for their system specific to their business—their sales increased 20%. If you’d like to be in control of your inventory levels, we’d welcome a conversation about your unique situation.