How can you effectively reduce stock outs across distribution channels?

Overview

Reduce Stock Outs with Distribution Management Software. In today’s consumer centric world and ever dynamic demand-supply metrics, physical distribution and availability of product at point of sales is the most tricky aspect of the of the supply chain management process. A very crucial aspect of the whole supply chain process is the management of market logistics. It helps in controlling the physical flows of product from the point of production to the point of sales. 

The objective of an efficient market logistics is “getting the right goods to the right places at the right time for the least cost”. Today, many manufacturing companies achieve this objective by using Distribution Management Software to improve inventory visibility, optimize product movement, and reduce stock outs across distribution channels.

Unfortunately, most of the organizations across industries with complex distribution channels (whether it is in 0, 1, 2 or 3 level channel) fail to accomplish this objective due to multiple reasons. One such critical insight is market information about the stock movement from actual point of sale at the right time. Many a times, this leads to stock outs across distribution channels because organizations fail to supply sufficient stocks in sync with customer demand due to inefficient forecasting, production planning, and limited inventory visibility.

Stock-out (OOS) refers to the inability of a seller to provide a product demanded by customers, leading to lost sales and diminished customer loyalty. Customers, even loyal ones, often choose substitutes or alternatives rather than wait for restocking, resulting in a loss for both the brand and the store, as well as potential negative word-of-mouth impact.

Why Do Stock Outs (Out of Stock or OOS) Happen?

1. Inaccurate forecasting is one of the main causes of OOS, which results in either ordering too little or too late. It happens, even when historic sales reports are inaccurate, inventory management becomes irrelevant to meet actual product’s demand.
2. There may be discrepancy between actual number of products in store or warehouse and product’s record in the billing systems at sales points. Technical issue like synchronization delay, human error, pilferage, etc. may also be attributed to this.
3. Unexpected surge in consumer demand due to unforeseen natural conditions, e.g., during last year’s winter, most of the stores in Delhi, room heaters were out of stock because store owners and even manufacturers failed to foresee the unexpected demand of it which happened due to severe cold conditions
4. Downstream logistic issues also play key role in OOS of product but it is not entirely under the control of the organization. Efficient transport system (like in Japan, U.S. and China) must be established in countries like India to address this problem.

Possible steps and ways to reduce stock-out situations.

1. Accurate demand forecasting historic sales data and reports help organizations make informed decisions about inventory management and reduce stock outs. In order to generate precise and accurate sales reports, companies need to monitor product sales trends carefully using Distribution Management Software.
2. Generally, there is some delay between making of order and the actual delivery date. The organization needs to set auto reorder point of stock for every product SKUs in such a way so as to cover that time gap effectively. This can be done when AI-driven Distribution Management Software is well integrated with billing systems across the distribution channel, enabling timely replenishment and helping manufacturers reduce stock outs.
3. In the current digital transformation era, organizations can use Distribution Management Software and Sales Force Automation Software for effective inventory management, better demand planning, and improved product availability across distribution channels.
4. One of the emerging trends is an integrated Distribution Management Software and inventory management system where primary, secondary, and tertiary sales are recorded and displayed on a centralized dashboard with alerts and notifications for key stakeholders across every level of the distribution and logistics channel. This provides real-time inventory visibility, helping organizations maintain minimum stock levels at every point of sale and reduce stock outs.
5. In some cases, in order to shift inventory carrying cost to the suppliers or manufacturers and to reduce the burden of higher investment due to unsold stocks, organizations can build an eco-system of facilitating the retail channel to hold stocks without making payment until the product has been sold to the consumer.
6. Lastly, some organizations can also opt for Safety Stock. This means in order to prevent OOS, extra inventory is supplied, at the same time new age techniques like machine learning are used to ensure that safety stocks do not result in over-stocking which can take up the space and incur additional costs to the retailer as well as to the distributors.

Focus should always be on maximizing customer service at every point of the distribution and supply chain network to create a win-win and long-lasting brand value chain for everyone. By combining accurate demand forecasting, Distribution Management Software, and better inventory visibility, manufacturing companies can reduce stock outs while improving product availability and customer satisfaction. Hope these methods and suggested steps help you minimize future stock-outs. Know more and speak to the supply chain management experts from the Outreach DMS & SFA team.