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How serious is the impact of stockouts on retail shelves?
Supply Chain teams focus on ensuring product availability at the Point of Sale. However, despite our best efforts, there are stockouts on shelves when consumers want to buy our products.
What’s the impact of these stockouts?
A quick calculation often used is the loss of sales in those outlets, based on the run rate of selling. This is, however, only a partial view of the total impact.
Let’s think of a consumer who wants to try our product for the first time, probably attracted by the marketing campaigns. The cost of nudging new triers is quite significant. If the product is stocked out and she ends up buying another brand, our efforts in converting this consumers has gone waste. Do we count it in the impact?
Now, let’s think of another consumer who is a regular user of our product, called a Repeat buyer in marketing terms. If she doesn’t find our product on the shelf and ends up buying a competitor’s brand, we have not only lost this sale but also given ‘New Trier’ opportunity to the competitor. How costly would that be?
We should consider the impact of all these three scenarios while assessing the impact of stockouts.