What metrics do you use to measure stockouts and prevent lost sales?

1 Stockout rate

The stockout rate is the percentage of times that a product is out of stock when a customer orders it. It indicates how often you fail to meet customer demand and how reliable your inventory replenishment process is. To calculate the stockout rate, you need to track the number of orders that you receive for each product and the number of orders that you cannot fulfill due to stockouts. Then, you can divide the number of unfulfilled orders by the total number of orders and multiply by 100 to get the percentage. For example, if you receive 100 orders for a product and 10 of them are out of stock, your stockout rate is 10%. A low stockout rate means that you have a high service level and a high customer satisfaction.

2 Lost sales

Lost sales are the sales that you could have made if you had enough inventory to fulfill customer orders. They represent the revenue that you miss out on due to stockouts. To estimate lost sales, you need to estimate the demand for each product and compare it with the actual sales that you make. One way to do this is to use historical data and sales trends to project the expected sales for each product and time period. Another way is to use customer feedback and surveys to gauge the potential demand and the willingness to buy. Then, you can subtract the actual sales from the expected sales to get the lost sales. For example, if you expect to sell 100 units of a product in a month and you only sell 80 units due to stockouts, your lost sales are 20 units.

3 Fill rate

The fill rate is the percentage of customer orders that you can fulfill from your available inventory. It measures how well you can meet customer demand and how efficient your inventory management is. To calculate the fill rate, you need to track the number of units that you ship to customers and the number of units that customers order. Then, you can divide the number of units shipped by the number of units ordered and multiply by 100 to get the percentage. For example, if customers order 100 units of a product and you ship 90 units, your fill rate is 90%. A high fill rate means that you have a low risk of stockouts and a high customer satisfaction.

4 Inventory turnover

The inventory turnover is the ratio of the cost of goods sold to the average inventory value. It indicates how quickly you sell your inventory and how often you replenish it. To calculate the inventory turnover, you need to track the cost of goods sold and the average inventory value for a given period. Then, you can divide the cost of goods sold by the average inventory value to get the ratio. For example, if your cost of goods sold is $10,000 and your average inventory value is $2,000, your inventory turnover is 5. A high inventory turnover means that you have a high sales volume and a low inventory holding cost.

5 Safety stock

The safety stock is the extra inventory that you keep on hand to prevent stockouts in case of unexpected demand or supply fluctuations. It acts as a buffer against uncertainty and variability in your inventory management. To determine the optimal safety stock level, you need to consider several factors, such as the demand forecast, the lead time, the service level, and the stockout cost. One way to calculate the safety stock is to use the following formula:

Safety stock = (Maximum daily demand x Maximum lead time) - (Average daily demand x Average lead time)

For example, if your maximum daily demand is 20 units, your maximum lead time is 10 days, your average daily demand is 15 units, and your average lead time is 5 days, your safety stock is 50 units. A sufficient safety stock level can help you reduce the risk of stockouts and increase the service level.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?