Operation Management

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Information about inventory stock out
  A stockout , or out-of-stock   (OOS) event is an event that causes inventory to be exhausted. While out-of-stocks can occur along the entire supply chain, the most visible kind are retail out-of-stocks in the fast-moving consumer goods industry (e.g., sweets, diapers, fruits). Stockouts are the opposite of overstocks, where too much inventory is retained. Recent surveys on retail out-of-stocks suggests that instore operations are fundamental to reducing retail out-of-stocks. Around 70-90% of stockouts are caused by defective shelf replenishment practices, as opposed to the 10-30% resulting from the upstream supply chain, such as a shortage of supply from a supplier. This broad knowledge offers retailers the opportunity to improve on-shelf availability through internal measures. However, it requires a detailed understanding of the causes for out-of-stocks. A shortage of working capital may limit the value of orders that can be placed each month. This could  be caused by poor cash flow management or other inventory issues such as too much cash tied up in high levels of excess. Stockouts frustrate shoppers that come to Nabyin company limited and force them to take a number of corrective actions that are beyond our control. Understanding how consumers respond to stockouts is therefore the starting  point if we wish to improve on-shelf availability. When shoppers are unable to find an item that they had intended to purchase, they might switch stores,  purchase substitute items (brand switch, size switch, category switch), postpone their purchase or decide not to buy the item at all. Although these responses differ in severity, each entails negative consequences for our company. Stockouts cause lost sales, dissatisfy shoppers, diminish store loyalty,  jeopardize marketing efforts, and obstruct sales planning, because substitution disguises true demand. Moreover, shopper surveys reveal stockouts to currently  be the most prevalent annoyance to shoppers. Shoppers spend a considerable amount of time looking for and asking for out-of-stock items. Shopper response  to stockouts has been investigated by researchers with respect to cognitive response (e.g. perceived availability), affective response (e.g. store satisfaction),  behavioural response (e.g.  brand switching) and aggregated response in terms of category sales effects. Studies find shopper response to out of stocks depends on brand-related antecedents (e.g. brand equity), product and category-related antecedents (hedonic level), store-related antecedents (e.g. service or price-oriented), shopper-related antecedents (e.g. shopper age) and situational antecedents (e.g. purchase urgency). Depending on the shopper response to an out-of-stock, we incur various losses. As a company, we face a direct loss of the potential sale when a consumer faces an out-of-stock because the shopper purchases the item at another store or does not purchase it at all. Additionally, when a substitution is made, the we also lose an additional portion of the potential sale because the shopper tends to switch to smaller and/or cheaper substitutes. In addition to the direct losses, the company can also incur additional indirect losses due to decreased customer satisfaction that results in less overall reliance on the our  particular brands. When an out-of-stock leads to purchase at another store, this  provides the consumer an opportunity to try a different store. Consumer  behavior theory argues that trial precedes adoption, and, thus, an out-of-stock sets the stage for possible permanent store switching. When an out-of-stock leads to purchase of a competing brand, the consumer trial can lead to possible  permanent brand switching as well. Research findings show that a typical retailer loses about 4 percent of sales due to having items out-of-stock. A loss of sales of 4 percent translates into some earnings per year. Identification of stock levels can reduce out-of-stocks. The traditional method is to perform a manual audit of the store and manually look for “gaps” on the shelves. Reference: https://en.m.wikipedia.org/wiki/Stockout    TARKORADI TECHNICAL UNIVERSITY BACHELOR OF TECHNOLOGY IN MARKETING OPERATION MANAGEMENT ATEBIYA A. EMMANUEL
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