Anticipating and fulfilling customer needs before they arise is one of the fundamental aspirations of effective business management, and in no area is this more vital than stock management. Previous research by The Harvard Business Review has estimated that retailers can lose nearly half of intended purchases when customers find their desired product out of stock, with 21% to 43% of customers merely switching to another source to see what they’re looking for. In the age of digital, where convenience dominates the consumer’s mind, stock-outs are now more devastating than ever.
So how can you successfully stock to meet customer demand?
Understand seasonal changes
The first and easiest way is to take note of seasonal events and how they affect what your customers want; you’re highly likely to see a lot more BBQs leaving the shelves from July to August than you are in December as an obvious example.
However, alongside these seasonal rises and falls, many stores fail to accommodate for what we call supplementary stock rises - or rises that occur in one product that is directly linked to another. For example, sales of matches are likely to increase along with those BBQs, as are sales of ketchup, burger buns and various meats. Adopting a holistic view of what products customers will be looking for will allow you to anticipate potential rises in stock demand across your business.
Map out recurring events
Sudden bursts of demand for regularly occurring events are a prevalent cause for stock-outs. Major sporting or cultural events can create an enormous need for snacks and alcohol, leaving unprepared shops dry with demand still sky high. The amount of lost business that occurs when this happens is damaging enough, but it can also create a negative perception of your business from those affected which will damage future sales. Avoid this by putting together a simple events calendar so that you can stay ahead of each significant rise in sales.
Make considered use of safety stock
Opting for safety stock is a particularly useful way of insuring yourself against stock-out, but it is a technique that must be applied with care and finesse, tailored to the industry that you’re operating in. Those dealing with perishables or items that are particularly time-sensitive in their appeal must consider how much buffer stock to maintain. Conventional wisdom in those industries is to use slim quantities of safety stock and find them something of a sunken cost that may or may not eventually is recovered.
Move your stock management to a digital system
All of the strategies listed above rely on you having an intimate knowledge of your stock levels throughout the year, which can be quite the task if you’re still using pen and paper to record stock take. Tracking through row after row on a piece of paper to find a trend is arduous and prone to human error. But with a digital system, that information is a lot more accessible and can often be visualised through graphs and charts in a way that makes trends easy to spot.
Once you’ve made a move to digital - with an EPOS system perhaps - analytics suites can be invaluable in helping you maintain near optimal stock levels throughout the year. This might not help you now, but it’s one of the best investments you can make for the future. With every passing week, month and year, your pool of data grows and with it your capacity to predict consumer demand and stock appropriately. Once you’ve captured a sufficient amount of data, you can begin to use more advanced techniques, such as demand sensing, which can reduce errors in forecasting by up to 45%.
Sift the outliers
No matter how advanced your forecasting system, you’ll always need common sense. Even with some of the incredible comprehensive sets of data available today, you’ll still need to use your judgement. The potential presence of outliers in any data-set means you’ll need to manually determine if demands are forming patterns or if you’re looking at an isolated incident.