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Poor stock availability distorts the sales history in several ways.
Most companies take past sales as a surrogate of consumer demand. In CPG companies, several companies are still using primary sales (company to distributor) as the demand trigger. Some have moved to secondary sales (distributor to retailer) as the basis for understanding consumer demand.
Both these measures can be severely affected in case of poor stock availability. If an item is out of stock, its sales are affected, thereby our demand estimates get subdued. That’s not the only impact.
In many cases, sales teams compensate for this loss of sales by selling more of another item. Of course, it depends on their ability to influence the customer to buy more. This influence is quite high in primary sales and relatively lower in secondary sales.
Such overselling distorts the sales history of the second item as well. It is quite usual for the stockout of a key product to distort the sales of the entire portfolio.
If we are using this distorted sales history to understand demand patterns, we are likely to draw wrong conclusions and create more mismatches in future.
We must correct sales figures for stockouts to understand past demand. Better still if we move closer to consumer and take either retailer offtake (if possible) or retailer orders as a better surrogate of actual demand.