Product stockouts, as the term implies are instances when a certain product is not available in stock for immediate purchase by a customer. A product stockout in the majority of cases will not have a cash costs, it may have intangible costs to the business such as customer satisfaction, loss of future business, and delays/costs to customers down the value stream. In some cases supply contracts for certain goods and services will have a penalty clause which penalizes the supplier if it cannot deliver the product or service, or a minimum quantity of such. This is common when product stock outs incur large financial losses to the customer and subsequent customers along the supply chain.
Causes of product stockouts
-Unseasonal peak demand
-Failure to manage inventory appropriately
-Wrong assumptions or facts in inventory model
-Loss of inventory or stock during warehousing or in transit
- Production delays including maintenance breakdowns
Measuring Product stockouts as a KPI
Product stockouts can be measured in different ways as a KPI's by the supply chain, sales or warehouse. It is a minimising goal, meaning the aim is to reduce it as much as possible. The way this KPI is measured must be carfully selected as some calculation methods may not tell an accurate picture. Some of the ways product stockouts are measured include:
-Volume or material unable to be supplied in terms of monthly/ quarterly/ annual sales volumes. Example: 3 tonnes of customer orders weren't supplied due to stockout out of a total of 100tonnes supplied. So the stockout rate was 3%.
- Volume or material unable to be supplied in terms of monthly/ quarterly/ annual purcharse orders. Example: 5 tonnes of customer orders weren't supplied due to stockout out of a total of 200tonnes ordered. So the stockout rate was 2.5%. This is a more accurate measure.
-Number of product lines on stockout as percentage of total product lines.
-Number or volume of product on back order in the system with firm customer orders. Back orders are orders confirmed by customers which have been logged into the inventory system but are not yet available to deliver due to a stockout.
More supply chain and lean KPI's