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In order to track
and control the appearance of out of stock, it is
necessary to establish the measurement system. Once
the stock outs are tracked and categorized by cause,
it is possible to control it and keep it at
acceptable level. What are the methods of stock our
measurement?
Numeric
Stock Out is the measurement of absence of
certain SKUs, regardless of their volume. If the one
SKU out of ten SKUs is not available, than the Stock
Out is 10%. The logic can be applied to daily basis,
different sales regions, etc.
Volume
Stock Out takes into consideration sales volume.
The volume stock out is measured as OOS vol = Sum
( SKUi OOS Days x SKUi Avg Daily Sales ) / TOTAL
Period Sales (%)
Value
Stock Out follows the similar logic as volume
stock out. The only difference is that the value is
taken into account, instead of volume:
OOS val = Sum ( SKUi OOS Days x SKUi Value of
Daily Sales ) / Total Value Sold ($)
Basically
all three methods are important, since they measure the stock out from different perspective.
Although
there is no doubt that stock out is not welcomed and
should be avoided, still it should not be avoided by
any cost. Conditionally, it can be said that low
percentage of stock out can be accepted. This may
sound as non-profitable attitude toward major
business objectives, but if we check the stock out
nature more deeply, we can understand that this can
be true true.
The
stock out appears as the result of supply shortage.
This shortage can be based on lack of capacity. It
can be that production capacity is limited to
cover the peaks of the season. The distribution
capacity can be limited for certain period of the month,
e.g. month end. The warehousing capacity can show up
to be a bottle neck for regular supply. So what is
the solution? To increase the capacity? Of course, the
increase of the capacity is the most obvious and the
easiest solution. But every increase of capacity
requires investment. Every investment requires
return on investment ( ROI )of certain rate, within planned
period of time. If the investment on capacity
increase is much more expensive than the gain that
it may bring, than it may sound reasonable to
continue with occasional stock outs. If there is no
certain return on investment, than it does not make
sense to make capital investment only to cover occasional
stock outs. This can be the case with the company
that is in harvesting phase on the market. If the
company have required share and sales volume, if the
market is not significant, than the decision of
conscious allowing occasional stock out can be the reasonable
decision.
Still,
stock outs should be avoided if that is possible.
The stock out can increase dissatisfaction of consumers
in case that it lasts for longer period of time.
After all, the product is not the only thing that
customers requires. The customers also requires a
good service. Regular supply and no stock outs are
the part of the good service.
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