Stock Shortage Shock: Over 50% of online shoppers globally have encountered out-of-stock issues while trying to make a purchase.
Empty Shelves Everywhere: The trend of products being out of stock is a widespread issue affecting a significant portion of the online shopping community.
Supply Chain Strain: These out-of-stock situations highlight ongoing challenges within supply chains worldwide, impacting customer satisfaction.
Shopping Frustration Nation: Consumers are increasingly frustrated with the lack of product availability, which can lead to lost sales and brand loyalty.
Ecommerce Inventory Woes: The frequent stock shortages underline the importance of better inventory management to meet rising online demand.
Over half of global online shoppers reported experiencing out-of-stock situations when trying to purchase products.
Meaning many ecommerce brands have had customers behave in this way:
In this blog post, we’ll talk about how to prevent stockouts, and by extension, this unsettling reaction from your customers.
But first, let’s explore how these inventory shortages can affect your business and how they creep into ecommerce operations in the first place.
What are Stockouts?
Inventory stockouts occur when a business runs out of a specific, in-demand product or SKU.
This situation often arises due to a delay anywhere in the supply chain, whether from internal inefficiencies or external factors.
According to the classic law of supply and demand, ecommerce businesses face a heightened risk of stockouts when supply is low and customer demand is high.
Key periods when they’re more likely to occur include:
- Holiday seasons. 27% of shoppers purchase holiday gifts as early as October, while 26% start before Thanksgiving and 19% during Cyber Week.
- Promotional events. Discounts, buy-one-get-one-free (BOGO) offers, and flash sales draw in the crowds. A study found that consumers stock up during promotions to save on future expenses.
- Product launches. Launching new products with effective marketing campaigns create FOMO among consumers. Consider Nintendo’s latest Switch game releases boosting console sales.
- Seasonality. Seasonal and weather changes affect consumer purchasing patterns. For instance, 45% of parents drive up demand for school supplies, clothing, and electronics during back-to-school sales.
It’s easy to think of stockouts as your products flying off the shelves. But it’s not always the case. And if left unchecked, they lead to a cascade of consequences.
What are the Consequences of a Stockout?
It’s estimated that stockouts cost businesses worldwide by $1.235 trillion. Here’s how OOS situations can affect yours:
- Lower customer satisfaction. Shoppers value product availability (36%) and convenience (32%). They won’t wait for your shelves to restock, impacting customer loyalty over time.
- Poor brand perception. Research suggests dissatisfied customers are more likely to voice complaints. They might post negative reviews in public, ruining your reputation and deterring potential customers.
- Revenue loss. Not fulfilling customer orders means losing sales you would’ve otherwise secured. That $1.235 trillion figure raises a lot of alarms.
- Increased costs. You don’t only lose sales in out-of-shelf situations. You also incur extra operational costs for rush orders, expedited shipping fees, and potential markdowns to clear excess stock.
- Operational inefficiencies. Emergency restocking efforts during OOS can disrupt regular operations and strain logistics and warehouse capacities.
- Lower SEO ranking. John Mueller from Google explained that the search engine treats pages with out-of-stock products as soft 404s. This can result in them being dropped from search results.
Lost revenue, higher costs, and supply chain disruptions drain business finances. Avoid these by knowing what causes stockouts and how to mitigate them.
6 Common Causes of Stockouts
Prevent stockouts by monitoring your operations and addressing inventory bottlenecks and inconsistencies.
Let’s look into the root causes so you can be one step ahead:
1. Inaccurate inventory levels
Inventory miscounts lead to stock on-hand overestimation and late reorders, causing stockouts.
Root causes: manual data entry errors, misplaced items, staff oversight, outdated inventory management software, system glitches
2. Poor demand forecasting
Underestimated forecasts cause a shortage. Conversely, overstock due to overestimates ties up capital and warehouse space, causing stockouts of other SKUs.
Root causes: inaccurate historical sales data, ineffective forecasting models, limited insight into market trends
3. Supplier and manufacturing delays
Extended lead times, inconsistent delivery patterns, and frequent backorders can empty your shelves, especially without a diverse supplier base.
Root causes: lack of buffer stock or safety stock levels, poor supplier communication, multiple tiers of intermediaries
4. Logistics and transportation issues
Traffic congestion, weather disruptions, poor route planning, and inventory mishandling reduce timely stock availability.
Root causes: limited shipping options, lack of supply chain visibility
5. Online misinformation
Misinformation incites fear among consumers, which strains the supply chain.
Example: During the COVID-19 pandemic, fake reports on toilet paper, food, and medical supply shortages triggered widespread panic buying.
Root causes: no real-time update on product availability online (and in-store)
6. Quality control issues
Rejected batches and recalled products go out of circulation (i.e., they’re no longer available for distribution). Retailers must scramble for replacements, or they risk immediate stockouts.
Root causes: quality check discrepancies, incomplete documentation, inadequate staff training
Sales take a hit in stockout situations. Customers who can’t find what they need tend to take their business elsewhere.
It’s important to keep your inventory under control and avoid losses by implementing the right strategies.
15 Key Strategies to Prevent Stockouts
Average out-of-stock rates from the early 2000s stood at 7 to 10%.
There hasn’t been a new study to emphasize how the stockout rate has evolved through time, but with the pandemic and the continuous supply chain issues, it’s safe to assume it has seen a steep rise.
Considering this surge, businesses need to be more vigilant. Here are the best ways to prevent stockouts:
1. Sharpen demand forecasting
When forecasting consumer demand, reaching 100% accuracy is an impossible feat given that there are so many factors in play.
It’s particularly true for ecommerce brands, where you mix in complicated variables like heightened competition and diverse geographical locations.
But this doesn’t mean you shouldn’t strive to get closer to that absolute level.
One surefire way to bolster it from the get-go? Tapping into technology with an advanced forecasting tool, preferably one powered by AI.
McKinsey reported AI demand forecasting can reduce errors by up to 50% and reduce lost sales from stockouts by up to 65%.
A collaborative process also makes for accurate demand forecasting. Doing so provides valuable insights for better inventory control.
It’s like gathering puzzle pieces from various places. Together, they give a clearer picture of future demand. For instance, sales insights can flag upcoming market shifts, while operations can track production capacity.
2. Track and optimize lead times
Lead times determine whether you’ll run out of stock, overstock, or receive a product right on time.
But before you can optimize it, you’ll have to know what your real lead times are.
Many ecommerce brands make the mistake of relying only on the information their suppliers give to them.
This doesn’t give a complete picture, though.
You need to see the total lead time, which typically includes deviations such as the order review process, time-to-warehouse, receiving procedures, and all the waits between (ex: international shipping delays).
Look at your data to figure out what your products' actual lead times are. It should show you a more realistic timeline and duration for getting your goods available again on the market.
Once you see where the typical lags and dips occur, only then can you work on stabilizing it. Work with your suppliers to see where you can close gaps.
Let’s say, you observed your vendor only ships once a week, which leads to a constant delay in international transportation. Together, you and your vendor can come up with a plan to expedite the process.
3. Maintain optimal safety stock levels
Holding less inventory lowers carrying costs.
Should this affect your ability to maintain a sufficient level of safety stock, however, you risk sacrificing customer satisfaction through stockouts.
Safety stock cushions against that possibility and safeguards against supply chain disruptions, such as prolonged lead times.
Due to the onset of the pandemic and its subsequent series of unfortunate supply chain events, 80% of polled companies boosted their safety stock numbers in response in 2022.
It’s a good strategy for coping with the problem, but determining the optimal amount is necessary so you don’t end up with goods collecting dust on your warehouse shelves.
Safety stock can be static and dynamic.
For static, safety stock is calculated using 6 different formulas:
FORMULA TYPE | FORMULA |
---|---|
Basic safety stock |
Average Sales x Safety Days
|
Average/max formula |
(Maximum Sale x Maximum Lead Time) - (Average Sale x Average Lead Time)
|
Normal Distribution with uncertainty about demand |
Standard deviation of the demand x sqrt(Average Lead Time)
|
Normal distribution with uncertainty about the lead time |
Z x Average Sales x Lead Time Deviation
|
Normal distribution with uncertainty about the demand and the lead time (Independent) |
Z x sqrt((Average LT x (Demand Standard Deviation)^2) + (Average Sales x Lead Time Standard Deviation)^2)
|
Normal distribution with uncertainty about the demand and the lead time (Dependent) |
Z x Demand Standard Deviation x sqrt(Average LT) + Z x Average Sales x Lead Time Standard Deviation
|
When choosing one, take market and product performance into account. For instance, the average min-max computation works best for low-volume goods.
Dynamic safety stock, on the other hand, adapts stock replenishment according to volume-related demand and seasonal variations. Therefore, it’s more proactive.
Supply chain innovator Stefan de Kok explained it clearly:
4. Implement accurate reorder points
A reorder point is often referred to as inventory's golden equation. It tells you when’s the best time to replenish so you won’t have to ever deal with stockout situations.
The traditional method of calculating reorder points is to multiply lead times by demand rates, then add safety stocks, like so:
Reorder Point (ROP) = (Lead Time x Demand Rate ) + Safety Stock
If you’ve managed to do the first three tips well (predicting demand, measuring lead time, and knowing the optimal safety stock level) nailing the right reorder points should be easy. You have all the parameters you need to figure out the answer.
Should you go this route, revisit it quarterly to factor in trends and other factors.
Like safety stock, however, you can also opt for implementing dynamic reorder points.
A study shows that dynamic reorder points adjust inventory settings for seasonal demand and real-time data, which leads to better performance and reduced holding costs (so, it also solves excess inventory issues).
Dynamic reorder points are adaptive, continuously analyzing sales and inventory data to determine the best inventory buying strategy.
5. Use automated inventory management software
In many ways, traditional inventory management is inefficient and human error-prone.
Replacing it with efficient inventory management software can get so many stockout-averse processes rolling for you at the click of a button.
An absence of proper inventory management leads to lack of real-time insights into inventory levels or complete oversight of its movements through the supply chain, and poor knowledge of which items are selling well. These are all common causes of stock-out.
A real-time inventory management system keeps track of stock counts, processes, and data records automatically.
Think of it as the command center for your supply chain operations. It provides a wide range of benefits by handling many responsibilities, such as:
- automating demand forecasting,
- safety stock maintenance,
- lead time monitoring,
- performing product segmentation through ABC analysis,
- and setting dynamic reorder points to prevent out-of-stock events.
Krishnamoorthy explained how tools like Cin7 help ecommerce businesses:
Inventory management and AI-forecasting systems accurately forecast demand months in advance, maintaining stock levels and eliminating the risk of significant profit losses.
The data also provides rich insight into consumer buying trends, allowing businesses to scenario plan accordingly.
This is likely why a Shopify study revealed that 33% of companies had been planning to digitize their manual processes to improve supply chain resilience in 2023.
If you're among businesses seeking the best inventory management tool to streamline your workflows and processes, take a look at our recommendations based on our analysis of the top players on the market:
6. Conduct regular cycle counts
Cycle counting involves tallying selected inventory sections regularly.
It’s something you have to do to make sure the inventory numbers in your software translate to reality.
The more you audit your inventory, the more accurate it’ll be. So schedule cycle counts as often as you can.
Organize dedicated teams to perform the task.
Large online retailers can bring on scores of employees to perform cycle counts. For SMBs, assigning a selected group of employees to handle inventory counts.
To improve cycle counts’ efficiency, you can:
- Identify and weed out obsolete, defective, and damaged goods when you spot them.
- Use modern technology, such as inventory management systems, barcode scanners, RFID, and drones.
- Establish a schedule for counting, with a focus on what matters most. Ex: count fast-moving products every week, the rest quarterly. Using ABC analysis to segment products will prove useful here.
Aside from cycle counts, you can also conduct real-time checks during order processing to ensure continuous inventory accuracy.
Wholesale fashion brand Michelle Mae employed this strategy to prevent false inventory counts arising from unknowingly shipping the wrong items.
According to Founder Michelle Mae:
We use a two-person check system before shipping, reducing our error rate to less than 1%.
Additionally, we conduct quarterly inventory reviews, counting each article of clothing to ensure accuracy.
7. Integrate inventory data
Out-of-stock situations can occur when numbers aren’t coordinated across all sales channels.
Selling on marketplaces and having multiple online (and physical) stores could easily diverge inventory information.
Take Walmart’s 4.6% inventory loss due to stockouts during the COVID-19 pandemic. Shoppers reported items listed as out of stock (OOS) online but available in-store.
This fiasco revealed a failure in real-time data synchronization between Walmart’s ecommerce platform and inventory management system.
You’ll want each channel to depict the overall stock levels.
Relying on inventory management software can make cross-channel synchronization quick and easy. Platforms, such as SkuVault Core, enable integration with channel management software, like Zentail.
Allowing the platforms to easily interact makes it easier to obtain more accurate inventory counts.
8. Employ RFID technology
RFID (radio-frequency identification) prevents stockouts by sharpening inventory level accuracy.
Once your goods arrive at the warehouse, staff can attach RFID tags to them. Each tag has a serial number, is trackable, and can store more information than a barcode.
Plus, they enable faster cycle counting (see tip #6) due to their antennas' wireless transmission and the readers' ability to read multiple tags at a time.
With updated information on the current stock level, you can quickly restock inventory as soon as it reaches a set level—right before it hits SOS status.
You’ll be glad to hear: RFID tags and readers have become more affordable.
McKinsey estimated that tag prices have fallen by 80% and reader prices by nearly 50% in the past decade, calling the price reductions the biggest factor behind its growth in retail.
9. Identify stockout patterns
Seemingly insignificant events can precede a stock out situation—it’s easy to dismiss them if you don’t know what to watch out for.
Examine your data to check for signs. Often, a trend will simply emerge. Like seeing a product always running out around the same week every month.
To find the root cause, however, you’ll have to look a little harder.
For example, you notice certain promotional periods tend to result in more stockouts. This could only signal issues, such as inadequate planning when anticipating demand spikes (I’ll discuss how to handle this in tip #14).
Make inventory data audits a habit to see if you can discover patterns to help prevent stockouts and their impact on your business.
10. Follow customer trends
Stay one step ahead by looking at what your target market and existing customers are telling you.
Look at online behavior to see what’s trending and how it could impact your business performance. Doing so can enhance demand forecasting, bringing a more nuanced perspective to the process.
Many platforms, such as social media marketing tools, CRM systems, and the good ol’ Google Analytics, can bring emerging trends to the surface for you.
Leveraging them allows for a deeper understanding of your market, ensuring tailored decisions based on your customers' needs and your business' goals.
11. Develop a strong supplier relationship
With supply chain demand being on shaky ground since the pandemic, strengthening your vendor relationships can go a long way.
To prevent future stockouts, pre-owned luxury watch seller Precision Watches worked on developing stronger relationships with multiple suppliers to ensure a more resilient supply chain.
Marketing manager Sergey Traver recounted an instance when the company faced a stockout event after unexpected supplier delays:
Our primary supplier faced logistical issues that further compounded our inaccurate forecast.
To correct this, I immediately reached out to secondary suppliers and expedited orders to replenish stock quickly.
Precision Watches isn’t alone in this.
According to a Shopify report, nearly a third of interviewed Shopify Plus merchants built shock absorbers through local sourcing, finding new suppliers, and having several vendors.
Building lasting relationships with these vendors is a matter of establishing two-way communication and making timely payments.
There’s no substitute for old-fashioned communication between merchants and their suppliers. By forging strong partnerships with suppliers, businesses can improve supply chain reliability and reduce the likelihood of stock outs due to disruptions.
12. Try vendor-managed inventory (VMI)
Since you're strengthening your relationship with suppliers, maybe it’s a good idea to take the relationship to the next level by implementing vendor-managed inventory (VMI).
VMI allows you to share the responsibility of managing inventory with your suppliers.
How does this prevent stockout?
The product sources, AKA the suppliers, themselves, will take matters into their own hands, keeping track of inventory reorder points and lead times.
This arrangement works for your brand because you can bet there will be an ongoing supply of inventory (to the point where it’s fine to lower your safety stock!).
That said, VMI will only work if there’s enough trust between you and your suppliers because the collaboration requires sharing data and handing over an essential business function to your vendor.
13. Consider consignment inventory
Out-of-stock scenarios can occur when you're always worried about inventory tying up your cash flow.
If this sounds like you, check if consignment is a possible arrangement for your type of business.
With consignment inventory, the supplier retains ownership of the product until a customer buys it from you. So there is no upfront payment for the goods, but once sold, the supplier takes a cut of the payment.
In ecommerce, we often see this in the form of dropshipping. But other ecommerce businesses might find it useful for testing new products.
14. Align promotions and special offers with inventory levels
Know what’s worse than an out-of-stock situation? Having one while running deals and promos.
I can’t remember ever feeling glad for missing out on a bargain, can you? The same is true for your customers.
According to Kyle Hency, former Chubbies Shorts co-founder and current CEO for ERP software GoodDay, this stockout can stem from poor cross-functional pre-season inventory planning.
Digital marketing teams should contribute to demand planning just as much as supply chain teams.
If you’re planning exciting new promotional programs or a large community-based promotional event, those sources of demand and programs need to be incorporated into the pre-season planning process upstream so that you have the inventory necessary to make the event successful.
Any products with limited supply shouldn’t make it to the roster of discounts or special offers—unless you can guarantee you’ll be able to replenish them at lightning speed.
15. Be proactive in notifying shoppers
At times, stockouts are inevitable. And if you see them looming, don’t try to cover for them.
Let your shoppers know. Transparent communication is one of the best strategies for improving customer experience.
CEO James Wilkinson of supplement brand Balance One shared this story with me:
“Nearly three years ago, we had a stockout of our bestselling Ashwagandha capsule caused by an unexpected surge in demand.
The associated spike in demand overwhelmed our existing stock, which created a two-week out-of-stock period.
Since this was a short-term problem, we focused on expediting production, and adding a temporary per-customer purchase limit during the restocking phase.
Communication was clearly published on our website and announced on social media.”
Get more inspiration from the way these brands have handled this:
On product pages, ecommerce storage tank shop Tank Retailer provides the current lead time information and a contact form to allow customers to ask about current ship times:
According to owner Lou Haverty. “This is effective because it prevents customer surprises about longer ship times after purchases are already made.”
Ecommerce brand Le Puzz uses emails to spread the message about their OOS situation:
Etsy seller Nandemocreative posted about available products on X (Twitter) ahead of an upcoming pop-up event:
If you didn’t catch the out-of-stock in time, reach out to affected shoppers right away and remedy the situation. Here are ways to handle it:
- Offer discounts or incentives.
- Suggest alternative products.
- Give them an estimated timeline of the OOS product’s availability (like Balance One’s and Tank Retailer’s strategies).
Final Thoughts
Stockouts hurt your bottom line. However, they’re preventable.
The great news is that you don’t have to pull out all the stops to see results. For instance, Balance One has only adopted data-driven forecasting, created a diversified network of suppliers, and learned to communicate with customers proactively.
These efforts alone have enabled the supplement brand to remain free of stockout issues since then.
As Wilkinson shared, “Customer satisfaction with product availability scores are very high as per results of the most recent post-purchase surveys we conducted.”
Like Balance One, a combination of these tips can do wonders for preventing stockouts. And they’re not that hard to pull off, since you can automate many of them through an advanced inventory management system.
Leveraging one has been the most resounding advice I've heard from the business owners and inventory experts I talked to regarding stockout prevention, so don’t take it with a grain of salt.
Get a deeper understanding of inventory management software by reading the following:
- Here are the best ecommerce inventory management tools
- Discover the must-have features your inventory management tool should have.
- Read more ways to improve inventory management in general and specifically for ecommerce.
Would you like to receive the latest ecommerce inventory management tips and more? Sign up for The Ecomm Manager newsletter to get the hottest insights sent straight to your inbox.
Stockout Prevention FAQs
Let’s tie up these last few questions before finishing up this topic.
What should I do if I go out of stock?
Notify your customers promptly with specific restock dates and alternative product suggestions if possible.
Depending on your business model, you may offer preorders and backorders to secure future sales. Add a reservation system to your sales channels to implement these features.
How can I optimize my inventory levels to reduce holding costs?
Holding optimal inventory to meet demand without excess reduces storage space usage and carrying costs. In addition to the stockout prevention strategies above, consider:
- Practicing just-in-time (JIT) inventory management: ordering goods in smaller, more frequent batches based on real-time sales data
- Negotiating consignment contracts: hold and display goods without paying for them until sold
- Avoiding minimum order requirements: don’t purchase quantities more than necessary only to get pricing discounts or favorable shipping terms
How can I handle seasonal variations in demand to prevent stockouts?
Holidays, festivals, school schedules, and other cyclical events drive predictable fluctuations in demand. Analyze your historical records to accurately anticipate future demand.
Maintain a buffer stock of popular seasonal items based on your demand forecasts.
In cases where safety stock exceeds expectations, promote early or late-season sales to balance your inventory levels.
What are the common mistakes in inventory management that lead to stockouts?
Committing the following inventory management blunders can lead to stockouts:
- Poor supplier management (e.g., unreliable suppliers, long lead times, or lack of alternatives)
- Outdated or manual inventory management systems
- Cross-functional collaboration gaps among sales, marketing, and logistics
- Not measuring or measuring too many irrelevant KPIs
- Lack of regular, hands-on inventory monitoring and auditing
- Physical distance between management and warehouses
- Data fragmentation caused by decentralized ERP and inventory software systems