What is the difference between a stockout and a backorder?

1 What is a stockout?

A stockout, also known as an out-of-stock (OOS), occurs when a product is not available for purchase at the point of sale, either online or in-store. Reasons for a stockout can range from inaccurate demand forecasting to supplier issues, and it can have dire consequences for both the retailer and the customer. Loss of revenue and profit margin, lower customer satisfaction and loyalty, damage to brand image and reputation, increased customer switching and competition, and missed cross-selling and upselling opportunities are all potential outcomes of a stockout.

3 How to avoid stockouts and backorders?

Optimizing inventory management is the best way to avoid stockouts and backorders, which requires having the right amount of inventory in the right place and time, based on accurate demand and supply data. To achieve this goal, you should implement an inventory management system that tracks your inventory levels, locations, movements, and costs in real time. Additionally, demand forecasting tools can be used to analyze historical sales and market trends to predict future demand. Moreover, inventory replenishment tools can calculate optimal reorder points, quantities, and frequencies based on demand, lead time, and safety stock. Furthermore, inventory allocation tools can distribute your inventory across multiple channels, locations, and segments based on demand, availability, and profitability. Lastly, inventory control tools can monitor your inventory performance and suggest actions to improve your inventory turnover, fill rate, and service level.

4 How to handle stockouts and backorders?

Sometimes, despite your best efforts, stockouts and backorders may still occur due to unexpected events or fluctuations in demand and supply. To minimize the impact on your business and your customers, it is important to handle them effectively. You should communicate clearly and honestly with customers about availability and delivery status of products, and offer alternative options, discounts, or incentives to retain their interest and loyalty. Additionally, you should communicate regularly with suppliers about inventory needs and negotiate better terms, prices, and delivery times. Moreover, it is important to communicate frequently with staff about inventory situation and provide them with the tools, training, and support to deal with customer inquiries. Lastly, you should communicate consistently with stakeholders about inventory performance and report on the causes, effects, and actions of stockouts and backorders.

5 How to measure stockouts and backorders?

To improve your inventory management, you need to measure your stockouts and backorders and understand their impact on your business. This can be done by calculating the stockout rate, which is the percentage of products that are out of stock at the point of sale over a given period of time. Additionally, you should calculate the backorder rate, which is the percentage of products that are ordered but not delivered over a given period of time. You should also measure the stockout cost and backorder cost, which are the amount of revenue and profit lost or delayed due to stockouts and backorders respectively. Finally, customer satisfaction should be tracked to measure the degree of customer satisfaction with your product availability and delivery over a given period of time.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?