How To Prevent Stockouts In The Warehouse

Stockout is the inability of a company to meet a certain level of demand due to not having the particular product in its warehouse stock. There are various reasons to why stockouts occurs which could be due to internal errors by the company or external factors that are difficult to anticipate.

Below are some common reasons for a stockout in the warehouse:

• Unforeseen growth in demand: This is very difficult to predict since it is due to sudden fluctuations in demand caused by social or market changes. Also, this could be due to the unexpected success of a particular product.
• Internal error in forecast demand: It is the responsibility of the company's logistics area to correctly plan and forecast future demand. Taking into account historical data and statistical and forecasting tools, a plan must be defined to avoid stockouts in the warehouse, correctly defining the safety stock and the reorder point of each product item.
• Lack of communication between different areas of the company: Communication between the different areas of the company is key to avoid stockouts. The logistics department is the focal point for ensuring smooth communication with all other departments.
• Problems in previous stages of the supply chain: The supply chain is a complex network of different companies and phases in which any problem in the previous phase can affect the subsequent ones. A stockout can occur due to supply chain problems in the raw material, production or transport phases for example.
• Failures by suppliers: This could occur due to a failure in the agreed amount with fewer units arriving to the company or a failure in the delivery schedule that was previously agreed by the supplier.
• Internal errors in inventory management. While stocking taking, human or computer errors that distort stored goods data may end up leading to a stockout.

Tips To Avoid or Prevent a Stockout

Below are some tops to avoid or prevent a stockout:

• Safety Stock: This is the stock that should be available to cover changes in demand, delays from suppliers and the like. Correctly defining the stock level can prevent a stockout in these circumstances.  
• Optimal Lot Size: This is the correct amount of goods to be requested every time an order is placed to optimize it. If a product is at high risk to suffer a stockout due to its characteristics, it is advisable to increase its order let, even if this incurs a higher storage cost.  
• Reorder Point: Apart from the quantity, it is necessary to define the period and frequency with which orders are placed with suppliers. There should be a balance between placing the fewest possible orders to reduce costs and placing large orders that would entail having a high stock level in the warehouse.
• Communication and Relationship With Suppliers: Suppliers should be carefully selected based on their response capacity, flexibility and delivery periods. The relationship between the company and its suppliers should be carefully nurtured to ensure a smooth and continuous communication. This would make it possible to know in advance of possible delays or problems in the supply of materials.
• Internal Communication In The Company: There should be continuous internal communication within the company to reduce the effect of stockouts. One method to improve internal communication is to implement a Customer Relationship Management (CRM) software to ensure that all departments have the latest information available to them.