Mindfulness has become one of the most valuable resources we possess. Today, we process more than ten times the amount of information compared to 20 years ago. One strategy for coping with information overload is performing tasks in a way that minimally engages our awareness or even doing them automatically. Some decisions, which do not have a significant impact on our lives, are made intuitively, without much thought. A good example is shopping—most of us cannot recall even half of the products we put in our cart last week.
The Product Ran Out – So What?
Consciously or unconsciously, we make hundreds of small decisions every day, often without even noticing. Some people use a shopping list, while others shop spontaneously. Some buy only what they need, while others enjoy experimenting with new products. However, there is one situation that every shopper will eventually face—the absence of the product they came for. What happens then?
Research Shows That:
- 31% continue shopping at another store, looking for the desired product.
- 26% stay in the same store and choose an alternative brand.
- 19% opt for a different variant of the same brand.
- 15% postpone the purchase.
- 9% abandon the purchase entirely.
How Often Do Stock Shortages Occur?
The global average Out of Stock (OOS) rate is 8%, meaning that one in twelve sought-after products is unavailable. In Europe, the rate reaches 8.6%, the highest recorded in studies by the Grocery Manufacturers Association, while in the USA, it stands at 7.9%, close to the global average.
Stock shortages are not random—they result from cost-effectiveness calculations. Demand for products fluctuates, and the more unpredictable it is, the larger the inventory needed to maintain full availability. In practice, this means that stores and manufacturers must balance between storage costs and the risk of temporary shortages.
How Does This Look in Different Industries?
Food Products (FMCG – Fast-Moving Consumer Goods)
Food, especially fresh products and snacks, has the highest level of unavailability, exceeding 10%. Seasonal products and those on promotion are particularly vulnerable to shortages, as their demand is harder to predict.
Cosmetics and Household Chemicals
This category has a significantly lower OOS rate of around 4%. A longer shelf life and stable demand make inventory management easier, resulting in fewer shortages.
Pharmaceuticals (Pharmacies)
For medications, availability is crucial, so pharmacies aim for nearly 100% stock levels. Shortages primarily result from production and regulatory issues. For prescription drugs, it is standard practice to allow ordering and collection the next day.
What Are the Key Factors Affecting Shortages?
There are many causes of stock shortages, but three key factors play a crucial role:
- Shelf Life and Demand Variability – Products with a short shelf life, such as fresh food, may become unsellable if not purchased in time. At the same time, demand variability means that, for example, bananas from the latest shipment may sell out quickly while the next delivery has not yet arrived, causing a temporary shortage.
- Inventory Holding Costs and Expiration Risk – Maintaining high inventory levels involves additional costs for storage, transportation, and logistics. For perishable goods, there is also the risk of expiration, leading to losses and the need to dispose of unsold items. As a result, many companies optimize stock levels, which can lead to temporary shortages on store shelves.
- Impact of Seasonality and Promotions – Stock shortages tend to spike during certain periods. In the USA, as many as 31% of customers encountered product shortages during the holiday season. In Europe, the highest shortages occur on Saturdays when inventory runs low. Products on promotion have twice the OOS rate of standard items, and bestsellers can experience 50–80% more shortages than slower-moving products.
How to Reduce Losses Due to Stock Shortages?
The simplest way to avoid stock shortages would be to increase inventory across the entire assortment. However, as mentioned earlier, companies aim to avoid this due to additional costs. Higher inventory levels lead to capital being tied up, increased storage costs, and the risk of losses from expired stock. Therefore, it is crucial to focus on improving three key areas:
1. Demand Forecasting and Inventory Management Automation
Advanced systems help predict demand and optimize inventory levels:
- Real-time inventory monitoring systems enable continuous tracking of stock levels.
- Predictive analytics considers seasonality, sales trends, and order history, minimizing shortages and excess inventory.
- Automated low-stock alerts allow for a quick response and help prevent supply disruptions.
Implementing APS (Advanced Planning Systems) reduces losses and enhances operational efficiency.
2. Promotion Optimization and Its Integration with Demand Planning
Poorly managed promotions can lead to rapid stock depletion and empty shelves. To prevent this, companies should:
- Factor in the impact of promotions when forecasting sales and adjust inventory levels accordingly.
- Avoid excessive discounts, which can cause sudden spikes in demand and shortages.
- Implement purchase limits to prevent stock from running out too quickly.
- Align delivery schedules with planned promotional activities to ensure product availability.
Integrating promotions with demand forecasting helps prevent losses and improves sales profitability.
3. Working closely with suppliers
To ensure continuity of supply and minimise the risk of shortages, it is worth implementing:
- VMI (Vendor Managed Inventory) model, in which suppliers manage shop inventory, optimising its levels.
- Improved communication with suppliers, enabling faster response to sudden changes in demand.
Close collaboration and flexible stock management maintain high product availability and increase customer satisfaction.
Finding the right balance between stock shortages and excess inventory isn’t easy. Want to know how we’ve helped our clients achieve it? Get in touch!
