Inventory shortages (or stockouts) can result in lost revenue, backorders, shipping delays, longer lead times, increased shipping costs, decreased customer satisfaction, and poor customer retention. As a retailer, you’ll go to any length to avoid inventory shortages. However, if shortages are due to working capital restrictions, you may be unsure of how to resolve the issue. Keep reading as we uncover everything you need to know about inventory shortages and how to avoid them.
Most common causes of inventory shortages
While the consequences of inventory shortages are many, the most common causes of stockouts are basic and few.
- Lack of inventory: The most obvious cause of inventory shortages is a lack of inventory. Failure to plan ahead and account for seasonal changes, industry trends, consumer demand, and current market conditions will likely result in inventory shortages and stockouts every time. Retail businesses should use what is known as demand forecasting to prevent this issue and keep up with the demand for inventory. There’s also the possibility that your supplier just can’t keep up. If this is the case, choose a different supplier or put customers on an ordering basis. Just make sure if you’re taking orders that your products are worth waiting for.
- Working capital issues: If your business is regularly experiencing a lack of cash flow, it may be difficult for your company to order enough products to keep up with consumer demand and maintain adequate stock levels. Frequent, small orders that keep your fulfillment team struggling to catch up are not as cost-effective or efficient as larger purchases made with proper demand forecasting. Inventory financing and other forms of business financing can fix this problem. In an effort to access more working capital while keeping costs down, take advantage of Kickfurther for inventory funding. We’ll explore this option in more detail later on.
- Inaccurate data: Whether you haven’t updated your inventory management system to the 21st century or you are encountering frequent lost and damaged goods, the wrong inventory count can lead to inventory shortages. Regular audits as well as automation software can help prevent stockouts caused by poor data.
Tips for retailers experiencing inventory shortages
Retailers experiencing frequent inventory shortages (and other inventory control problems) should consider the following tips to improve their inventory management.
- Perform inventory optimization: Inventory optimization is a method of best practices to balance inventory demand with cash flow in order to maintain proper stock levels and meet consumer demand. Inventory optimization takes current market conditions and trends into account along with historical data to calculate a demand forecast. AI demand forecasting is increasing in popularity.
- Supplier segmentation: Companies must remain flexible and responsive in order to stay competitive, keep up with market conditions and industry trends, and ensure that products remain in stock and available for purchase. Supply chain issues can cause many inventory management issues including stockouts. Supplier segmentation helps reduce this risk and increases your company’s efficiency. The key idea behind supplier segmentation is that vendors who are vital to your organization require a higher level of engagement and resources to adequately manage. Increase the value of your supply chain by defining your strategic relationships with vendors and segmenting them dynamically. Through this process, your company can gain valuable insights into your supply chain, gain a better understanding of supply and demand, and plan ahead for seasonal fluctuations in product demand. Likewise, diversification of these vendor partnerships is crucial. You never want all of your reliance to be upon one company or supplier, especially when it comes to your best-selling product lines.
- Speed up your replenishment capabilities: There are a number of ways that your product-based business can increase its ability to keep shelves restocked. You may need to be flexible with your preferred vendor and consider ordering from other suppliers when necessary. You may need to take out inventory financing or another form of business financing in order to have the cash flow needed to keep up with consumer demand. Companies should regularly evaluate their current third-party logistics provider (if applicable) and compare them against other providers to get the best lead times and shipping times. Regular physical audits and data-driven demand forecasts are an important part of the replenishment process. Making sure that you are placing seasonal orders and other orders in plenty of time to meet consumer demand is another great way to ensure your products remain on the shelf. No matter how you accomplish it, replenishment optimization is key to increasing customer satisfaction and avoiding the costly issues that come with stockouts.
- Implement training with employees on stocking: A properly trained team will help prevent inventory management issues every time. Afterall, they are on the ground at all times, and you may not be. Encouraging communication and new ways of doing things can help solve problems and improve inventory systems. Furthermore, make sure your employees have the resources they need to keep up with inventory. As a business owner or manager you should stop and talk to employees as often as time allows. A quick “how’s it going” can teach you more than a one-hour training or meeting. It’s amazing what you’ll find out just in passing. If you choose to hire a third-party logistics company or other provider, be sure they have the expertise and industry knowledge you need in order to succeed.
- Send out proper allocations: For companies with physical retail locations, ensuring that you have the proper allocations for each store is crucial. Utilizing key data about your inventory and creating an allocation optimization strategy will help ensure that you send the right amount of product to the right stores. Demand may change per store so make sure you understand the market for each location. Allocations will not be the same at every store.
- Provide transparency to customers: Many online retailers have found great success with keeping customers updated via real-time visibility into product inventory. Receiving a “low stock” alert or seeing a low number of products left in stock on the product page helps incentivize customers to go ahead and place that order. Letting your customers know when the product will be back in stock is another great benefit of transparent inventory management systems. Another key strategy is to showcase similar options to consumers whenever you have to turn away potential orders due to stockouts. All of these methods help reduce the drop in customer satisfaction when their favorite items are out of stock.
How Kickfurther can help
Funds for inventory can force unwanted inventory shortages. The reality is that inventory ties up a lot of cash and as you try to grow, this may cause challenges. To overcome this challenge, small businesses often obtain inventory loans and funding. Inventory funding comes with its own set of challenges from the cost to qualification requirements.
An entrepreneur that once struggled to find affordable inventory financing for his small business, did what entrepreneurs do best – solve problems. It was after countless no’s and high financing costs that he created Kickfurther.
Kickfurther is the world’s first online inventory funding platform that enables small businesses to access funds that they are unable to acquire through traditional sources. For companies that sell physical products or non-perishable consumables and have revenue between $150k to $15mm over the last 12 months, Kickfurther can help. We connect brands to a community of backers who help fund inventory on consignment and give brands flexibility to pay that back as they receive cash from sales.
Kickfurther can help startups and small businesses fund millions of dollars of inventory at costs up to 30% lower cost than the competition. With more than $100 million in inventory funded to date, Kickfurther can help you get funded within a day or even minutes to hours.
Interested in getting funded at Kickfurther? Here are 3 easy steps to get started:
#1. Create a free business account
#2. Complete the online application
#3. Review a potential deal with one of our account reps & get funded in minutes