ARTICLES

Stock Out is “Criminal”

Stock out is a situation where an item is out of stock. It’s a situation in which the demand or requirement for an item such cannot be fulfilled from the current inventory. It is a phrase no one wants to hear, particularly in a business environment.

Due to the high dependence of imported goods in most Nigerian retail businesses, the lead time required and the risks involved, some degree of stock-outs will almost be inevitable. Most businesses experience stock-outs at some time or another while some experience the problem more than others.

Earlier on in my career at Cadbury’s my supervising boss used to say to us that “Stock out is criminal. It’s an offence that is hard to forgive.”

Every time a customer requests to buy a product that’s stocked-out, there’s a good chance they’ll end up unhappy due to the unavailability of the item and may go to buy a similar product from competition.

  • When the business is already aware of the potential stock-out situation, team members responsible for making the stock available will certainly spend a lot of time resolving the problem.
  • When the business is unaware of the stock out then the problem becomes more serious and more detrimental to the bottom line as the reaction time of team members becomes slow and late.

Some businesses can solve the potential stock out problem by carrying excess stock levels. This however is a temporary reprieve at a high cost to the business as it ties down working capital, requires the use of more space in the warehouse and there is a risk of obsolescence and theft.

Stock-outs are a real nuisance as it disrupts the daily routine of the business and requires them to scramble around to make the problem go away by expediting existing orders or placing emergency orders, which can be costly.


What causes a stock out?

There are several possible causes of a stock out. Some are detailed below

  1. Late planning of the items.
  2. Sudden change in demand forecast.
  3. Consumption higher than the planned requirement.
  4. Wrong specification stocked in the warehouse.
  5. Poor scheduling at supplier factory and warehouses.
  6. Delay in payment to suppliers hindering further supplies.
  7. Logistics issues and delays at the sea or airports.
  8. Inaccurate warehouse records on quantity available in stock.
  9. Spoilage or obsolescence or wastage of stock in warehouse.


The Implications of a stock out:

Some of the implications of a stock out situation on a business are many and varied as listed below

  1. Buck passing within the business.
  2. Rush orders at a higher cost have to be activated.
  3. Reduction in sales volume and value below planned targets.
  4. Insufficient sales value to cover financial overheads.
  5. Reduction in customer service.
  6. Back office staffs have to be reassigned to other jobs.
  7. Drop in staff morale due to the reassignment or cut in work hours.

The total impact of a stock out on a business is hard to measure as the implications on customer service levels, sales revenue and overall costs are high and cannot be fully quantified.

The business however can use the problem created by a stock out, to review and improve their internal processes, particularly the stock replenishment processes with a view to eliminating stock outs.
The supply chain team of the business needs to work together continuously as a high performance team to eliminate the risk of stock outs.

Oladapo Olarinmoye
Chief Operating Officer
J.D. Samuel Ltd

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