How to avoid stockouts with an ERP system

Poor inventory control brings with it many risks, including stockouts. The following sections provide information and solutions to these and other questions.

What are stockouts and why do they occur?

Let's start by looking at what exactly stockouts are. We use this expression when a company is unable to meet the demands of its customers for one or more specific products. In other words, although the consumer wants to buy the product, stocks are exhausted.

This is a major supply chain failure, which has an impact on business profitability and brand image. The most notable thing about stockouts is that they are usually caused by high demand for a particular good. As a result, even though the consumer is determined to buy the product, the company is unable to monetise this interest because it does not have any stock.

What are the causes of stockouts? When a product becomes unavailable, it is usually the responsibility of the company itself and its supply chain management. However, there are also times when stock is exhausted due to external factors that are not controllable. In any case, here are some common causes of stockouts:

• Orders not placed on time. When the supply chain is controlled in a rudimentary or even manual way, mistakes with orders to suppliers can often be affected. Orders not being placed on time carries a risk of having to stop production partially or completely. In such cases, stockouts are the fault of the company.
• Fluctuations in demand. Consumers change their minds quickly and markets can be highly volatile. A company that works on the basis of stable demand for a product can easily be overwhelmed during a peak in orders. This is obviously an external factor, which a company cannot control. But, as we will see later, there are tools to predict such market changes.
• Inaccurate inventory of supplies. Inaccurate inventory data may end up stopping production completely. Why? Unreliable supply forecasting results in orders not being placed on time and critical product components not being available. This issue is directly related to the company's management of its supply chain.
• Delays in the delivery of raw materials. Receipt of goods is sometimes delayed. Although this is a difficult problem to avoid, its effects can be mitigated if backup stocks are available.

Stockouts are nothing new. But is there a way to deal with or avoid them?

Demand forecasting, the key to avoiding stockouts

Demand forecasting is a technique that allows companies to know whether they will need to reduce or increase production in advance. This is achieved through analysis of the company's historical data and other critical information.

These tasks can be carried out with ERP. In this case, the management application also covers many other areas of the business, in addition to reporting on future demand. This forecasting helps prevent stockouts, but also leads to better purchasing decisions and inventory optimisation.

Other issues related to stockout

In addition to demand forecasting, there are other issues related to the stockout you need to know about. Here are the most basic:

• Maximum stock. This expression refers to the maximum quantity of stock to be produced. The stock of a given product should never exceed this maximum. Exceeding the maximum stock level results in unnecessary storage costs.
• Minimum stock. This is the opposite of maximum stock. The minimum stock is the quantity of product that must always be in stock. It is the ideal figure for the company to successfully meet customer requests. The production line must be operated in such a way that the minimum stock of a product is always available.
• Backup stock. This concept refers to an extra quantity of product that will be kept on hand to cope with unforeseen events or sudden increases in demand.
• Supply point. This defines the time at which the warehouse is to be restocked.

Avoiding stockouts is possible by correctly choosing these variables. It is certainly a complicated task that is simplified by digital ERP solutions.

SAP Business One and SEIDOR, helping you avoid stockouts with an ERP system

ERP is a comprehensive process management system that unifies all the tasks of a company in one place. It also provides useful information that improves decision-making and, as we said at the beginning of this article, it allows you to plan inventories easily and avoid stockouts.

SAP Business One offers you full control of production in your business. The implementation of big data analyitics offers reliable demand forecasting to determine what the minimum and maximum stock levels should be. You can even manage how orders are placed with suppliers!

At SEIDOR, we can help you implement SAP Business One in your SME. Avoid stockouts with the world's leading ERP. Thousands of companies have chosen our solution as their process management platform. Now it's time for your company to do the same.