Out-of-stock (OOS) is when a supplier runs out of inventory for a product, resulting in lost revenue and potential customers switching to competitors. Causes include production delays, equipment failure, and natural disasters. Suppliers offer backorders or risk losing sales. Supply chain management helps prevent OOS situations.
Also known as out of stock or OOS, an out-of-stock is a situation in which a vendor or supplier has run out of available inventory of a particular product and must wait to replenish the stock before filling a pending sales order. Businesses typically try to avoid this type of event if possible, as the inability to fulfill an order quickly often results in lost revenue, both in terms of the specific order and in that customer’s placement of future orders. Inventories are the opposite of overstock, where the supplier has high inventories that far exceed current demand for those items.
There are several reasons why a stockout can occur. In the manufacturing sector, a business may experience downtime in the production cycle, resulting in delays in producing a steady stream of finished goods needed to fill outstanding orders. The potential for this type of delay leading to a stockout increases when the company operates on a just-in-time schedule, meaning goods are produced in response to pending orders in order to maintain inventory levels as low as possible. Downtime in the production cycle can occur due to a delay in receiving raw materials, a temporary failure of the equipment used in the production process, or even some kind of natural disaster that prevents the facility from functioning for a period of time.
When a stockout occurs, customers are usually given two alternatives. Customers can choose to accept the temporary delay and approve placing the order in what is known as backorder status. With this approach, the order is still pending and will be fulfilled as soon as the products are in the supplier’s possession. Typically, suppliers will provide periodic updates regarding the expected ship dates for the order as part of the customer communication process.
A customer can also choose to simply cancel a pending order when notified of stockout. This particular scenario is one that suppliers prefer to avoid if possible, as it represents an immediate loss of a sale and the revenue generated from that sale. In addition to the immediate loss, stockout can also cause customers to seek out similar products from competing companies. If competitors deliver the desired items quickly and without delay, there’s a very good chance the customer will switch alliances and start doing business on a regular basis with that competitor.
Part of the supply chain management process is to prevent inventory situations from occurring. This involves ensuring that inventories of raw materials, spare parts, and other resources needed to maintain production levels are obtained on a schedule that always allows for additional materials and parts to be ordered and received before a production delay occurs. Retailers also use supply chain management to avoid an out-of-stock situation by measuring the typical sales pattern for items carried in stores and structuring orders with their suppliers to ensure shelves are adequately stocked at all times.
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