The out-of-stock rate refers to the amount of an assortment that is not in stock. It is used to measure the products that are out of stock when the customer places an order. For example, you might have seen that when they shop online, sometimes the item you like or the size that fits you is out of stock which means either it is sold out or no longer available in the inventory. So, the out-of-stock rate is used to measure the customer shopping experience and to quantify the lost sales.
Formula to calculate Out of stock rate
OOS= SKUs not in stock / Total available SKUs
SKU stands for the stock-keeping unit which is basically a scanner barcode printed on every product and is used to automatically track the moment of inventory.
Root causes of OOS
- Incongruence between shelf capacity and replenishment frequency.
- A large number of SKUs in an assortment
- High product demand.
2. Ordering store
- Bad POS data or inaccurate records.
- Inaccurate forecast.
- Inaccurate inventory or book stocks.
- Late orders or returns.
- Insufficient or busy staff.
- Congested backroom.
- Inaccurate record management or errors.
- Infrequent, late, or no shelf filling.
- Bad execution and compliance
Consumer response to OOS situation
- Store-switch: Customer buys the item at some other store.
- Delay purchase: He may buy later at the same store.
- Substitute: He may buy from a different brand.
- Lost sale: The customer might not purchase the item.
Effects of OOS
- A high Out of stock rate indicates that a number of service failures have occurred which points to decreased brand loyalty and a poor customer experience.
- OOS leads to bad forecasting since true demand is unknown due to the out-of-stock items. This distorts the baseline on which demand forecasts are made.
- For manufacturers, OOS lowers the impact of promotions and trade promotions funds.
- OOS makes your customers check out your competitor brands which leads to a direct loss of relationship with the customers.
- OOS makes the category management and related efforts less accurate and effective.