While product availability is key to sales and customer satisfaction, we often experience stockouts in retail and service establishments like restaurants. Small and even established businesses have this perennial problem, especially during peak time and peak season. The reason is more than just mismanagement or poor planning. Management may have this faulty notion that stockouts and long customer lines due to high demand are a “nice problem to have” compared to low demand and slow moving inventories. But they are still a “problem” and will not be “nice” in the long run.
Frequent stockouts particularly of high demand products and the consequent long waits can diminish brand loyalty and eventually lead to customers, even loyal customers, to switch to competitors with similar products. In retail, where competition is shelf war, an empty shelf of the best product can lead shoppers to pick up from the shelf the second best or their second choice which is available. There are few ultra-loyal buyers who would postpone purchase while waiting for their brand to be replenished and be available. Few customers would be willing to undergo the inconvenience of going to the store twice or store hopping, searching for their favorite product.
Restaurants are often guilty of stockouts of their bestseller dishes during peak time like lunch time. The main reason customers want to go to a restaurant is to have their
Stockouts can be reduced with proper demand planning, inventory management, production planning, and quick replenishment processes. It is not enough to be accurate forecasting product demand. There may be enough product supply but stockout can happen at the SKU (stock-keeping-unit)level like package size, type or color variant. Customers look for their preferred SKU of a product and may not substitute another SKU even of the same product and brand.
Business which would like to boost sales should prepare and maintain high availability of their flagship, bestseller, and cash cow products and their fast moving SKU’s. Proper planning must be made to ensure minimal stockouts during peak times like – lunch time, weekends, Fridays,
Stockouts and change of orders due to non-availability are often not recorded and cannot be deduced from sales records. Low sales of products may not mean low demand but low supply. Sales records can mislead management and hide problems. Frontliners like waiters and front line sales personnel would not normally and regularly report to management canceled orders, changed orders, or lost sales and customers due to stockouts. Sharing this negative customer experience with the company is beyond their pay grade and job description. Management must make reporting and documenting stockouts the responsibility of customer-facing personnel in order to track and quantify these opportunity losses and do root cause analysis for corrective and preventive measures.
Stockout reduction can boost both sales and profits. Meeting or exceeding sales targets is not good performance if there are stockouts or unserved demand.
Prof. Rene T. Domingo or RTD is an adjunct faculty at the Asian Institute of Management. He is also an international management consultant, author, trainor, and executive coach in the areas of strategy, entrepreneurship, lean operations, quality management, process and productivity improvement, and service operations. He has guided his large and SME clients in manufacturing, service, banking, hospitals, construction, real estate, and airline maintenance in improving their sales and profitability.
If you need strategic coaching and training in improving your business performance and growing your enterprise, you may contact RTD at rtd@rtdonline.com
