What is Out of Stock (OOS) Rate?
Out-of-stock (OOS) rate is a metric that measures the percentage of items within a product assortment that are unavailable for purchase at a given time. It is a direct indicator of how often customers encounter stockouts, situations where a product they want to buy is unavailable. For example, when shopping online, you might find an item is unavailable because it is sold out. This is a stockout and would be reflected in the OOS rate.
What Causes Stockouts?
There are a variety of factors that can lead to stockouts. Delivery and logistics issues like delayed shipments can result in inventory shortages. Even if demand is well-anticipated, insufficient cash flow can hinder your ability to purchase and restock inventory before it runs out. The OOS rate helps you quantify lost sales to help mitigate missed opportunities before they happen.
Why is Measuring OOS Rate Important?
Understanding and monitoring the OOS rate is crucial for several reasons:
- Reveals potential customer service issues: A high OOS can be a sign of frequent customer service problems as many shoppers are unable to purchase the items they desire.
- Enables accurate forecasting: Frequent out-of-stock items prevent you from assessing true demand. This makes demand forecasting much more challenging.
- Improves promotion effectiveness: Stockouts reduce the effectiveness of marketing campaigns as key items are often left unavailable.
- Drives customers to competitors: Stockouts often push customers toward competitor brands.
How to Calculate OOS Rate
You can calculate OOS rate with the following formula:
OOS Rate = (Number of SKUs Not in Stock) / (Total Number of SKUs Available)
In this formula, SKU refers to the "stock-keeping unit," a unique identifier for each item in your product catalog. Let’s look at an example to see this in action.
Say your catalog contains 100 items, each with its own unique SKU. At the time of calculating OOS, your available inventory includes 90 items while 10 are out of stock. In this case, your OOS would be 11.1%.
How to Avoid Running Out of Stock
Proactively addressing the common causes of stockouts can help minimize the OOS rate to maintain consistent sales performance. Below, are some best practices to reduce missed sales opportunities from stockouts:
Improve Demand Forecasting
Accurate inventory forecasting is vital to prevent stockouts. Conducting an ABC inventory analysis and using historical sales data can help you predict demand more precisely.
Use Pricing to Manage Demand
Strategic pricing adjustments can influence demand. For example, if demand is high and stock levels are low, increasing prices can slow down sales. This lets you slow down stockouts to allow for more time for inventory replenishment.
