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Forecast the demand to minimise out‑of‑stock

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Out‑of‑Shelf
and Lost Sales

Out‑of‑shelf means that the item is not in stock at the retail outlet
or the number of items in stock is lower than the set minimum.

The opposite situation is overstock, when there is an excessive
amount of items at the warehouse or the outlet.

The main reasons of OOS (out‑of‑stock) and OS (overstock)
are incorrect calculations of the required quantity of goods
and errors in forecasting.

Why is it important?

Drop in sales

If the product is not available, both the manufacturer and the
distributor lose their profits. If the product is out-of-stock, 45%
of consumers will buy another product, 15% will postpone the
purchase, and 40% will buy somewhere else or refuse to buy at all.

Retailers and brands lose 1/3 of revenue annually due
to empty shelves in supermarkets.

Excessive stocks lead to a decrease in inventory turnover:
capital gets “frozen”, leading to the allocation of additional funds
for storing, relocation and sale of overstock merchandise.

Reputational Risk

Empty shelves and reduced product ranges decrease customer
traffic and have a negative impact on the outlet reputation.
When consumers can not find the desired product in one outlet,
they choose another one nearby, and, eventually, start shopping
at a competitor store regularly; consumers can choose an analogue
of the competing brand or leave without purchasing anything.

On the other hand, overstocking leads to product expiring
in warehouses and on shelves. A product, that has passed its shelf
life and is still on display, can seriously harm outlet reputation.

Drop in sales

If the product is not available, both the manufacturer and the
distributor lose their profits. If the product is out-of-stock, 45%
of consumers will buy another product, 15% will postpone the
purchase, and 40% will buy somewhere else or refuse to buy at all.

Retailers and brands lose 1/3 of revenue annually due
to empty shelves in supermarkets.

Excessive stocks lead to a decrease in inventory turnover:
capital gets “frozen”, leading to the allocation of additional funds
for storing, relocation and sale of overstock merchandise.

Reputational Risk

Empty shelves and reduced product ranges decrease customer
traffic and have a negative impact on the outlet reputation.
When consumers can not find the desired product in one outlet,
they choose another one nearby, and, eventually, start shopping
at a competitor store regularly; consumers can choose an analogue
of the competing brand or leave without purchasing anything.

On the other hand, overstocking leads to product expiring
in warehouses and on shelves. A product, that has passed its shelf
life and is still on display, can seriously harm outlet reputation.

Solutions for Out‑of‑Stock
and Overstock in Several Steps

01

Data Collection

Collecting data on past sales, stocks, prices,
and promos for at least the last two years and
collect additional data if needed.

OOS and OS regular tracking is one of the
basic condition to solving problems such
as on‑shelf availability or slow turnover.

02

Setting Targets

Defining the targets for an outlet: sell out
or keep minimum stock, control OOS during
spikes in demand, sell out slow-moving items
and avoid having overstock of them in the future
plan in‑store merchandising, manage
promos, etc.

03

Building Models

The optimal model is selected based
on targets and product category.
If the dataset is reliable, model
is tested on several SKUs first.

04

Testing and Integration

Adjusting the model depending on the
obtained test run results, outlet targets and
selected strategy. Testing can be performed
for product categories and specific SKUs.
Launching fully operational system.

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