Stockout

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. According to a study by researchers Thomas Gruen and Daniel Corsten, the global average level of out-of-stocks within retail fast-moving consumer goods sector across developed economies was 8.3% in 2008. This means that shoppers would have a 42% chance of fulfilling a ten-item shopping list without encountering a stockout. Despite the initiatives designed to improve the collaboration of retailers and their suppliers, such as Efficient Consumer Response (ECR), and despite the increasing use of new technologies such as radio-frequency identification (RFID) and point-of-sales data analytics, this situation has improved little over the past decades. Recent surveys on retail out-of-stocks suggest 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 of 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 and force them to take a number of corrective actions that are beyond the retailer's control. Understanding how consumers respond to stockouts is therefore the starting point for retailers who wish to improve on-shelf availability.