Stockout - Definition & Importance
What is Stockout?
A Stockout or out of stock is event where the product is exhausted. Stockout generally refers to the shortage of stocks experienced in retail stores for FMCG products or consumer products. The losses resulting from exhaustion of products for sale are referred to as stockout costs.
Importance of Stockouts
Suppliers generally complain that the stockouts happen due to the inefficiency of the retailer. It means that the upstream supply chain is generally not the reason for shortage of goods but the replenishment efficiency of a retailer. There are many causes of a stocks falling short. Faulty demand estimation can be a reason for the stockout. An inefficient supply chain can be the cause of a stocks getting exhausted. A cash crunch at the end of the retailer may also be a reason of inability to stock enough products. Due to the recent advances in technology like Radio frequency identification (RFID), there is a better coordination between the retailer and the supplier resulting to a decrease in the average Stockout over the past decade. The current average rate of product exhaustion is approximately 8%.
The response of a shopper to Stockout may vary from product to product, retailer to retailer and shopper to shopper. In case, a shopper is loyal to the product which is stocked out, he will go to another shop to buy or will buy later from the same shop. If he is not very loyal, he will buy some other brand from the same category from the same shop.
Hence, this concludes the definition of Stockout along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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