A stockout, or out-of-stock (OOS) event is an event that causes inventory to be

exhausted. While out-of-stocks can occur along the entire supply chain, the
most visible kind are retail out-of-stocks in the fast-moving consumer
goods industry (e.g., sweets, diapers, fruits). Stockouts are the opposite
of overstocks, where too much inventory is retained.

Recent surveys on retail out-of-stocks suggests that instore operations are

fundamental to reducing retail out-of-stocks. Around 70-90% of stockouts are
caused by defective shelf replenishment practices, as opposed to the 10-30%
resulting from the upstream supply chain, such as a shortage of supply from a
supplier. This broad knowledge offers retailers the opportunity to improve on-
shelf availability through internal measures. However, it requires a detailed
understanding of the causes for out-of-stocks. A shortage of working
capital may limit the value of orders that can be placed each month. This could
be caused by poor cash flow management or other inventory issues such as too
much cash tied up in high levels of excess.

Stockouts frustrate shoppers that come to Nabyin company limited and force
them to take a number of corrective actions that are beyond our control.
Understanding how consumers respond to stockouts is therefore the starting
point if we wish to improve on-shelf availability. When shoppers are unable to
find an item that they had intended to purchase, they might switch stores,
purchase substitute items (brand switch, size switch, category switch), postpone
their purchase or decide not to buy the item at all. Although these responses
differ in severity, each entails negative consequences for our company.
Stockouts cause lost sales, dissatisfy shoppers, diminish store loyalty,
jeopardize marketing efforts, and obstruct sales planning, because substitution
disguises true demand. Moreover, shopper surveys reveal stockouts to currently
be the most prevalent annoyance to shoppers. Shoppers spend a considerable
amount of time looking for and asking for out-of-stock items. Shopper response
to stockouts has been investigated by researchers with respect to cognitive
response (e.g. perceived availability), affective response (e.g. store satisfaction),
behavioural response (e.g. brand switching) and aggregated response in terms of
category sales effects. Studies find shopper response to out of stocks depends
on brand-related antecedents (e.g. brand equity), product and category-related
antecedents (hedonic level), store-related antecedents (e.g. service or price-
oriented), shopper-related antecedents (e.g. shopper age) and situational
antecedents (e.g. purchase urgency).

Depending on the shopper response to an out-of-stock, we incur various

losses. As a company, we face a direct loss of the potential sale when a
consumer faces an out-of-stock because the shopper purchases the item at
another store or does not purchase it at all. Additionally, when a substitution is
made, the we also lose an additional portion of the potential sale because the
shopper tends to switch to smaller and/or cheaper substitutes. In addition to the
direct losses, the company can also incur additional indirect losses due to
decreased customer satisfaction that results in less overall reliance on the our
particular brands. When an out-of-stock leads to purchase at another store, this
provides the consumer an opportunity to try a different store. Consumer
behavior theory argues that trial precedes adoption, and, thus, an out-of-stock
sets the stage for possible permanent store switching. When an out-of-stock
leads to purchase of a competing brand, the consumer trial can lead to possible
permanent brand switching as well. Research findings show that a typical
retailer loses about 4 percent of sales due to having items out-of-stock. A loss of
sales of 4 percent translates into some earnings per year.

Identification of stock levels can reduce out-of-stocks. The traditional method is

to perform a manual audit of the store and manually look for “gaps” on the
shelves.

Reference: https://en.m.wikipedia.org/wiki/Stockout
 TARKORADI TECHNICAL UNIVERSITY

BACHELOR OF TECHNOLOGY IN MARKETING

OPERATION MANAGEMENT

ATEBIYA A. EMMANUEL