Some of the effects of stock-outs are the loss of customer’s goodwill and loyalty, backorders, having your customers shifting to your competitors and having to purchase products and higher costs from competitors.
Inventory control involves minimizing of the cost of inventory (Groover, 2010). The purpose of stock out in an inventory control is to assist in minimizing the inventory costs. Since stock-out costs and inventory costs are, directly related to minimizing stock-out cost would result in fewer inventory costs. Stock-out costs are costs of sales lost when items are not inventory (Pride et al. 2011). Thus if we undertake many inventories, we can minimize the stock-out costs and thus reduce the inventory costs. If we can be able to minimize stock out costs, we can achieve a minimum inventory cost hence succeeding in our inventory control. Hence, stock-out serves a very important purpose in an inventory control.
In every business, stock-outs are associated with specific costs. One of these costs is transport cost incurred in order to make as many products as possible available as a way of meeting demand. Another cost is the expediting cost incurred to accelerate the supply of products to meet customers’ orders. Another cost associated with stock-out is the cost of buying products from a competing supplier to meet a customer’s order. This cost can be very important in building customers’ loyalty although it can result in a decline in the company’s revenues (Collier amp. Evans, 2009).
A demand for stock outs is the demand for a product when it cannot be found on the shelf. This always shows that there is a need for stock-outs in order to meet the orders of the customers. To deal with the issue on demand, various approaches can be used. One of the approaches is to keep a lot of stock available any time the customer needs them. However, this is not always possible due to the costs of stocking and the perishability of products.