Online shoppers might see your product out of stock and look for an instant alternative on a competitor’s website. When your customers rely on you for specific products, and run into an empty shelf (either virtual or physical), you risk losing them. Imagine while most of your customers default to stores that are out of stock but you have stock, think about the free quality traffic you will be getting." Build customer loyaltyĬustomer loyalty increases revenue, improves your brand reputation, sparks word-of-mouth marketing, and helps you gather valuable feedback. One of the reasons you are getting repeat customers is due to the fact that you always have supply available. Waqas also adds, "You can also lose or build brand loyalty if you are a dominant player in the market share. When the supply chain can be affected very quickly due to many circumstances leaving shelves empty and online stores with an out of stock sign on the most popular product page. This is very crucial especially in uncertain times like now. You’ll eventually need your supply chain to go back to business as usual, but safety stock can postpone (and often avoid) a stockout. When you hold enough safety stock, you extend your ability to keep selling your products. Shortage of materials, manufacturing issues, and problems in transport (like port congestion) are just a few reasons you may not be able to get your products as quickly and reliably as usual. If the supply chain you rely on runs into problems, you may struggle to keep serving your customers. Without safety stock, this change in demand becomes a missed opportunity. Factors like local events, competitor changes, or trends can drive more customers than usual to your store, or to a particular item. ![]() However, demand can spike for reasons that are less predictable or obvious. ![]() Patterns like these are relatively easy to adjust your inventory to. For example, the demand for surfboards and garden furniture spikes in hot months and is non-existent during the snow season. Some of them are predictable due to their seasonality. Why do you need safety stock? Account for demand uncertaintyĬustomer demand for the products you sell can increase for many reasons. Ideally, you’ll have both safety stock to ensure inventory for unforeseen circumstances, and a reorder point to automate replenishing. This is where you can tap into an additional 30 units you hold in case of unpredictable situations like this one. On another one, your supplier can’t get the merchandise to you in the usual timeframe. Let’s say that, during one period, customer demand exceeds 15 units. This ensures you have enough lead time to replenish a product’s inventory before quantities reach zero. □ PRO TIP: Set reorder points in Shopify admin and get notified when you’re running low on stock. In this example, 15 units represents the reorder point. ![]() Based on past customer demand for that product and the time it typically takes to receive that inventory, the 15 units will suffice. Once the inventory for that product comes down to 15 units, it triggers a new order of 100 units. Reorder point is a predefined inventory level at which you replenish your stock.įor example, suppose there’s a product in your inventory that you order 100 units at a time. Safety stock is additional inventory you keep on hand in case of fluctuations in demand and supply. There’s an important distinction between safety stock and a reorder point. ![]() Safety stock is your protection from unforeseen circumstances. For example, microchip shortages in 2021 significantly increased the time customers had to wait for a new car, made some features unavailable, and drove prices up. The same goes in case of a supply chain issue, like a material shortage. If the lead time with your supplier is short, meaning you can get new inventory in mere days, this is a small issue.īut if the lead time is already long, that product might be out of stock for months. Let’s say one of your popular products goes out of stock and customers keep asking for it. The biggest risk of not having a safety stock is having a stockout. If you sell more of a given product than you expected, your supply chain is disrupted, or your merchandise gets damaged, safety stock allows you to keep selling that product regardless. Safety stock, also known as buffer stock, is like an emergency fund.
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