4 Ways eCommerce Sellers Can Avoid Costly Stockouts
Stockouts are expensive and cause significant brand damage. Here’s how you can mitigate the risks that create stockouts.
Stockouts can potentially cripple an eCommerce business. A stockout occurs when a company runs out of a fast-selling product due to a lack of planning or uncontrollable circumstances such as a global supply chain issue. Either way, the eCommerce company faces customer backlash that can reduce future revenue.
The good news is that eCommerce business owners can avoid costly stockouts with planning. Here are four ways to prevent stockouts in your eCommerce business.
Minimize Cash Flow Shortfalls
Cash flow challenges often lie at the heart of stockouts. eCommerce sellers face several potential disruptions and most of them tend to come at the worst time possible. “There’s the obvious gross margin loss, but you’ll also incur expenses adjusting your supply chain,” writes Karlyn McKell of eCommerce financing company 8fig. “For example, there’s the loss of marketing dollars that didn’t produce a sale, fees for expediting replenishment orders, and costs associated with backorders, refunds, and canceled orders.”
McKell recommends managing cash flows to minimize the impact of unforeseen stockouts. In addition, good cash flow management will help you predict inventory needs, minimizing the chances of a preventable stockout. McKell mentions electronic inventory tracking as an easy solution.
“The first step in preventing a stockout is knowing how much inventory you have on hand,” she says. “With the myriad of tasks on your plate to successfully run a business, it’s wise to utilize technology and automate processes and data collection where possible, such as inventory tracking.”
Once you manage inventory, you’ll know what your supply needs are and the funds required in the future. You can then project cash flow and arrange financing to meet any shortfalls. eCommerce sellers can choose between several options, with equity and revenue-based financing the most popular options.
The bottom line is: Stockouts often begin due to inefficient cash flow management. Fix your cash flow projection processes, and you’ll go a long way towards preventing stockouts.
Stress Test Forecasts
Your cash flow forecasts must take several business conditions into account. Most eCommerce sellers manually project cash flow in spreadsheets, and this task can become tedious. As a result, you might neglect stress testing your forecasts since accounting for every variable in a spreadsheet is challenging.
An electronic forecasting tool will help you model different variables and stress-test your projections. For instance, in the current macroeconomic environment, eCommerce sellers must consider the effects of inflation and USD appreciation in their forecasts. How will revenues fluctuate and margins change if inflation rises by one percent?
Alternatively, how will revenues change if the USD stops appreciating and global currencies catch up following interest rate increases worldwide? Smaller eCommerce sellers may not be affected by these factors, but if you purchase offshore products and sell globally, currency fluctuations can wipe out profits.
Thus, stress testing your cash flow projections is essential. This process will help you manage excess cash and allocate capital efficiently. As a result, you’ll anticipate most disruptive situations and prevent stockouts.
eCommerce sellers are a busy lot. From managing their supply chains and customer service to projecting cash flows and managing inventory, the average eCommerce seller has their plate full. You must manage your time efficiently to successfully scale your business.
Technology has improved to the point where you can automate most of the tedious tasks associated with eCommerce management. For instance, restocking and automating the supply ordering process is easy with automation. You can integrate your manufacturer and suppliers’ systems with yours, and restock products based on inventory thresholds.
As a result, you’re unlikely to face product stockouts, barring unforeseen circumstances. These systems cost money. However, they pay for themselves thanks to the time they place in your hands. Writing for Hubspot, Lucy Fuggle correctly notes, “Although eCommerce automation saves you time, it doesn’t mean firing your employees — or yourself. Rather, it frees up your team’s time for the customer interactions, creativity, and big-picture thinking that matter most in your line of work.”
Monitor supply chain issues
Supply chains are critical to eCommerce businesses. From choosing the right manufacturer to picking the right fulfillment agent, eCommerce sellers of all sizes face challenges. Choosing a manufacturer is a critical task that often challenges eCommerce sellers.
Writing for The Balance, Ajeet Khurana outlines an example. “If a manufacturer is willing to work directly with you, it is most likely because they are too small to catch the attention of wholesale distributors,” he says. “In a case like this, a benefit, if executed properly between you, is the opportunity to grow together.”
However, small manufacturers can create supply chain issues down the road. “The ability to keep up with volume demand, which is essential to your own growing business, is a risk in partnering with smaller manufacturers,” Khurana explains. Supply chain management thus begins with your choice of the manufacturer or raw material source.
Examine their work processes and lead times. Note that long lead times often guarantee high product quality, to the detriment of flexibility in the supply chain. You must strike a balance between such lead times and the need to get the product in front of customers quickly.
Stockouts Are Preventable
You can’t always prevent stockouts thanks to unforeseen circumstances in the supply chain. However, you can prevent most of them from occurring by implementing the tips in this article. Examine your processes thoroughly, and you’ll create a resilient business in the long run.