9 Steps to Avoid Stockouts with Warehouse Automation

In the intricate dance of supply chain management, stockouts are missteps that cost your business both money and trust. But what if there was a way to predict, or even better, prevent these missteps? In this article, we’ll walk you through the causes and consequences of stockouts, but more importantly; how to prevent them with warehouse automation.

Stockout definition

Though the definition of stockout is almost self-explanatory, let’s start with defining the key topic of this article. A stockout, often termed as out-of-stock (OOS) situation, occurs when an item is unavailable for purchase, despite customer demand. It's the equivalent of a store or retailer telling its customer, "Sorry, we don't have what you need."

Beyond missed sales, stockouts can erode brand loyalty, pushing consumers to seek alternatives. In an age of rapid retail, where customers expect immediate fulfillment, understanding stockouts and strategies for their prevention is paramount for businesses aiming for longevity and sustained customer trust.

Before diving into the preventions, let’s look at the business consequences of stockouts and why your business cannot afford them.

Consequences of stockouts: Why your business can’t afford it

Stockouts, or instances when a product is not available for sale despite customer demand, carry significant consequences for businesses. These repercussions are not just financial in nature, but they also have profound impacts on customer loyalty and brand reputation. Here's a deeper dive into the cascading effects of stockouts:

• Financial losses: At the most immediate level, stockouts result in a direct loss of sales. Customers who are ready to purchase cannot do so, leading to immediate revenue loss. Moreover, businesses might incur additional costs related to expedited shipments, rush orders, or having to source products from alternative, and possibly more expensive, suppliers.
• Lost customer loyalty: Perhaps even more damaging than the immediate financial losses is the erosion of customer loyalty. When customers can't find the products they want, they often feel let down or frustrated. Repeated stockouts can lead customers to perceive the business as unreliable. Over time, these customers might decide to switch to competitors that can consistently meet their needs.
• Damaged brand reputation: In the era of social media and online reviews, a single stockout can result in negative publicity. Customers are more vocal than ever, and they readily share their experiences online. Multiple complaints about product unavailability can tarnish a brand's reputation, making it harder to attract new customers.
• Increased operational costs: Frequent stockouts may push companies to maintain higher inventory levels as a buffer, leading to higher carrying costs. Moreover, companies might spend more on inventory management systems or personnel in an effort to avoid future stockouts.

Read more: 5 tips to reduce your warehouse operational costs

• Missed market insights: Consistent stockouts might indicate a deeper problem: poor demand forecasting. If a business continually underestimates demand for a product, it might also miss out on critical market insights and opportunities for expansion or diversification.
• Long-term revenue loss: Some consequences of stockouts might not even be immediately evident. For instance, a one-time customer who experienced a stockout might never return, even if the product becomes available later. The long-term revenue loss from such customers can accumulate significantly over time.
• Strained supplier relationships: Repeated stockouts can also affect a business's relationship with its suppliers. Urgent reorders, frequent changes to purchase orders, or blame shifting can strain these relationships, potentially leading to less favorable terms or even discontinued partnerships.

In conclusion, while the financial repercussions of stockouts are undeniable, the more insidious effects on customer loyalty and brand reputation can have longer-lasting and potentially more devastating consequences for businesses. Effective inventory management, backed by accurate demand forecasting, is crucial for your business to navigate the challenges posed by stockouts and to safeguard their long-term viability and growth.

But before you can actually prevent these enormous business consequences, we need to identify the underlying factors of stockouts: the causes.

Causes of stockouts: Unraveling the underlying factors

Stockouts are every retailer's nightmare, but they occur frequently in the world of business. While some stockouts might be due to unforeseeable factors, many result from preventable errors or oversight. Delving into the root causes can help your business to develop strategies to minimize or even eliminate these occurrences. Below are some primary reasons behind stockouts:

• Inaccurate demand forecasting: One of the most common causes of stockouts is the inability to accurately predict product demand. When businesses underestimate the popularity or need for a particular product, they may not order enough inventory to meet customer demand.
• Inefficient inventory management: Even with an accurate forecast, poor inventory management practices can result in stockouts. This includes not restocking items in a timely manner, misplacing inventory, or not having real-time inventory tracking systems in place.
• Lead time variability: Lead time is the duration between placing an order and receiving it. If there's variability in this time — for instance, due to suppliers' inconsistency or customs delays — it can lead to stockouts, especially if not adequately accounted for.
• Supply chain disruptions: External factors like natural disasters, labor strikes, geopolitical tensions, or pandemics can interrupt the supply chain. When suppliers can't deliver goods on time, it can result in stockouts for retailers.

Read more: The importance of supply chain management

• Cash flow constraints: Sometimes businesses might have a clear understanding of demand but lack the necessary funds to purchase adequate inventory, leading to stockouts.
• Supplier issues: If a supplier faces production issues, cannot meet their commitments, or goes out of business, it can result in stockouts for businesses that rely on them.
• Inadequate safety stock: Safety stock is additional inventory kept on hand to account for variability in demand or supply. Not maintaining adequate safety stock for products with high variability can result in stockouts.
• Rapid shifts in market demand: Unexpected spikes in demand for certain products, perhaps due to a viral trend or unexpected events, can lead to sudden stockouts.
• Quality control rejections: If a batch of products doesn't meet the required quality standards and is rejected, it can lead to stockouts, especially if replacements aren't readily available.
• Logistical delays: Transportation issues, such as shipping delays, custom hold-ups, or transportation strikes, can impede products from reaching their intended destinations on time.
• Communication breakdown: Miscommunication between departments, like sales and procurement, can result in inadequate stock levels. For instance, if the sales team runs a promotion without informing the procurement team, it could result in a stockout.

Understanding the causes of stockouts is the first step in preventing them. By identifying vulnerabilities in their supply chain, inventory management practices, and forecasting methods, businesses can develop strategies to mitigate the risks of stockouts, ensuring they consistently meet customer demand and protect their brand reputation.

Having identified the consequences and causes of stockouts, let’s finally dive into the preventions utilizing warehouse automation.

9 actions to prevent stockouts with warehouse automation

Avoiding stockouts is vital to maintaining a positive brand image, ensuring customer satisfaction, and driving consistent revenues. With the rise of modern technology, businesses now have a potent tool in their arsenal: warehouse automation. Warehouse automation naturally comes with logistics management software such as Warehouse Management Systems (WMS), Warehouse Control Systems (WCS), and these are major game changers when it comes to avoiding stockouts.

In addition to implementing a suitable logistics suite for your business, whether it includes warehouse automation or not, knowing how to leverage the software is crucial. Here’s a step-by-step guide on how you can leverage your logistics suite to avoid stockouts:

1. Implement real-time inventory tracking

Integrate systems like WMS and WCS for instantaneous views of stock levels. Monitor these levels consistently to preemptively identify potential stockouts.

2. Leverage enhanced forecasting capabilities

‍Use the WMS software to analyze sales data, historical trends, and other metrics to forecast demand. Adjust inventory levels based on these predictions.

3. Set up efficient reordering processes

‍Program your automation systems to trigger reordering based on set stock thresholds, ensuring timely replenishment before stock gets too low.

4. Prioritize improved stock rotation

‍Use automated methods such as FIFO to manage stock, reducing chances of obsolescence and ensuring fresh stock availability.

5. Minimize human errors

‍Transition from manual inventory management to automated systems to decrease discrepancies in recorded and actual stock levels.

6. Integrate with suppliers

‍If possible, link your WMS with your suppliers' systems to enable auto-ordering when stocks dip below specific levels.

7. Use data analytics and insights

‍Regularly review insights from your warehouse automation system’s analytics tools. Understand inventory patterns and sales trends to predict and prevent potential stockouts.

8. Optimize storage space

‍Ensure that your automated warehouse utilizes space efficiently, ensuring quick retrieval and restocking processes.

9. Plan for scalability

‍As your business expands, ensure your automation systems can adapt to the increasing complexity of inventory. In the video below, Anders Mathisen from AutoStore explains the importance of scalability and flexibility in your warehouse system, and how AutoStore's modular design allows you to scale with ease and confidence.

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In conclusion, while there are numerous strategies to prevent stockouts, the integration of warehouse automation and the accompanying software (WMS and/or WCS) are the main strategies. These technologies provide businesses with the tools to monitor, analyze, and manage their inventories with unparalleled precision, making stockouts a concern of the past. Investing in such systems is not just about enhancing efficiency; it's about ensuring consistent product availability, maintaining customer trust, and safeguarding your brand's reputation in an increasingly competitive marketplace.

Speaking of the advantages of tackling stockouts, let’s have a closer look at the actual impact.

Invest now and secure retail excellence in the future

Avoiding stockouts with warehouse automation offers a multitude of advantages. Foremost, consistent product availability enhances a brand's reputation among consumers, fostering trust and loyalty. This reliability not only strengthens the brand but also significantly increases customer satisfaction. When customers can consistently find what they need, it paves the way for positive shopping experiences, ensuring they return time and time again. Beyond just the consumer experience, ensuring product availability means a business can maintain a steady revenue stream, avoiding the financial pitfalls of lost sales due to stockouts.

Operational efficiency is another key benefit. Automated warehouses considerably reduce manual tasks and errors. This streamlining of processes helps in eliminating operational bottlenecks and ensures smoother day-to-day functions. Moreover, as we navigate an era where technology and consumer demands are ever-evolving, having an automated warehouse system positions a business to adapt swiftly and seamlessly.

In essence, integrating warehouse automation isn't merely a strategic choice for businesses; it's an indispensable step towards modernization. It lays the groundwork for efficient operations and customer satisfaction, acting as a strong shield against the negative impacts of stockouts. By investing time and resources into these systems now, companies can secure their position in the future, standing tall as pioneers of retail excellence.

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FAQ

What is an example of a stockout?

A stockout occurs when a specific item is not available for sale or delivery when a customer wants it. For instance, if a customer goes to a store looking for a particular brand of sneakers and the store doesn't have it in stock, that's a stockout.

What are stockouts and how can I prevent them?

Stockouts refer to situations when items are unavailable for sale or delivery. They can be prevented through effective inventory management, regular demand forecasting, using automated inventory systems, and maintaining a safety stock.

What causes stockouts?

Causes for stockouts include poor inventory management, unexpected spikes in demand, supply chain disruptions, delayed shipments from suppliers, and inaccurate demand forecasting.

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