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The Inventory Mentor

Oct 25, 2016


What your customers go through when you stock-out

angry-business-people

The general rule of thumb is gaining a new customer is more expensive than keeping an existing customer. Losing a customer hurts sales today while shrinking the company’s growth potential going forward.

A customer’s expectations are a key factor. Experiencing a stock-out on an item the customer expects to be available can be impactful, especially compared to an item where the customer expects a back order or other delays.

In either instance, though, the customer expects to be provided with a promised delivery date and this defines their expectation.

As mentioned in a previous post, customers have a certain amount of tolerance for something like this, and they may accept a stock-out once or twice from a business they frequent.

In some environments where there may not be any direct interaction with customers, inventory managers may be totally unaware of the situation. A mechanism to make these stock-outs visible within the company is an important first step.

How the customer might react

A customer who has been given a reasonable delivery date is more likely to be tolerant. However, if the promised delivery date is not met, the customer will be even more dissatisfied and it becomes even more likely that they will take their business elsewhere, potentially for good.

Poor customer service experiences are quickly spread nowadays via social media, as well as websites specifically created to post complaints. Businesses who don’t respond to these complaints in a credible fashion further tarnish their reputation. The good news is that an effective resolution by the company will also remain visible.

How to manage a stock-out

In an effort to avoid cranky customers and lost sales, here a few ideas on how to manage a stock-out in order to minimize a customer’s frustrations and the harm it causes to the business:

  • Prepare a simple written procedure on how to deal with a stock-out situation. Ideally, the team applying these procedures should be involved in the preparation of the document so that full buy-in is achieved.
  • When there is direct interaction with customers, this procedure should include the following:
    • Offering the customer an alternative product
    • Transferring the product from a branch that does have stock on hand
    • Expediting existing orders on the supplier
    • Buying-out from an alternate supplier. Even if this compromises the profit margin, it will be money well spent
    • Placing an emergency order on the supplier
    • Recording the customer’s contact details and quantity required
    • Advising the customer when stock will be available
    • Committing to regular follow-ups with them on progress and then actually do so
    • Giving the customer a follow-up card with the relevant contact details should they wish to enquire on the progress
  • In environments where there is no direct interaction with customers, this procedure should include the following additional actions:
    • A mechanism — e.g. a notice — to let the customer know the issue is being handled
    • Updating the notice to display the date on which stock will be available
    • Delegating persons to frequently review the stock display racks to identify stocked out items and to take immediate action
    • In the case of vendor-managed inventory, ensure the supply contract includes a service level clause defining the requirements regarding the resolution of stock-outs
  • If items are sourced and procured by an in-house procurement division:
    • Set up an expediting team
    • Review the current inventory management system (IMS) tools — are there any in place to begin with? Are they using outdated tools, like a master spreadsheet?

Clearly, a stock-out is a painful process for customers and must be avoided. The amount of time and effort mistakes like this make can sink a business. In a future post, we’ll further examine the impact that stock-outs have on businesses.