Prevent revenue leakage with improved service levels

Jul 15, 2020

Your products slide over the digital counter like hotcakes. They are in demand, but as is often the case, a product is no longer in stock. Do you have sufficient insights into how often you do NOT sell a product because it is sold out?

The chances are that you do not. In a physical store, it is easier to find out, because you and your colleagues have to sell ‘no’ to the customer. However, determining how often your customer searches online for a product in your shop that is sold out is much more challenging.

A huge missed opportunity.

Products that are out of stock, among other things, have these adverse side effects:

X Missed sales

X Missed earnings 

X More opportunities for the competition

X Negative reviews 

X Stagnating or even declining growth

X Uncertainty in delivery time, which appears unreliable

Products that are often sold out have a low service level. When the product is not in stock, there is a good chance that your customer will go to the competitor, and you will never see them again. No-sales must be a thing of the past to keep your turnover and reputation high.

In this article, you will read about the common reasons for the sold-out stock, how to find out how often you sell no online (by calculating the service level), and the steps you can take to use this insight to increase your turnover drastically.

Reasons why your product is out of stock

You are probably not plodding through your webshop, ERP or PIM system every day, looking for stock statuses, which may not give you a full insight into your webshop’s stock levels. There are several common reasons why your product is not at the desired level:

1. Data is not measured correctly
Your current software does not output the correct data. Because of this missing or incorrect data, you are missing the correct insights, resulting in too little stock.

2. Too little is being purchased
Often the insufficient data mentioned above leads to not enough being purchased.
In consequence, extremely low purchase volumes mean that your shop cannot deliver sufficiently.

3. There is no automation
Where people work, mistakes are made. That is not bad, but it is preventable. When you work with superiors in a manual spreadsheet, it stimulates the susceptibility to errors. Orders are filled in too late, incompletely or not at all. These errors then lead to the manual update of the stocks (incorrectly) in the portals. By automating things, you keep an overview, and your data is always up-to-date with the actual stock.

4. There is no insight into the lead times
The lead time is the time between the order and delivery. If the lead time between your supplier and the delivery for your stock is longer than expected, you will have delivery problems. When this happens on a large scale, likely, a product often becomes out of stock.

5. Do not take seasonality into account
Flip-flops and swimming pools sell better in the summer, while your Sinterklaas decorating shop probably does not sell a single peppercorn nut during the same period. Make sure you know when the peak moments are and time your purchasing to match them. Note: your competitor is probably doing the same, so expect much disruption, which could lead to longer lead times.

The different reasons why your products are regularly sold out are now mapped out. If you identify with one or more of the above factors, there is probably a good chance that you will regularly have sold NO to your customer. Now we are going to help you gain more insight into which products are affected by calculating the service level per product.

What is the service level?

The service level is the balance of inventory costs versus the cost of not having a particular product in stock. In theory, a service level of 100 means that you will never run out of stock. A service level of 95 means that 95 of the 100 visitors to your webshop can buy the product at any time.

The service level is not calculated for the entire webshop, but a specific product, and it differs per product. Maybe your service level is not 100 or 95, but only 70. However, because you do not have that insight, you cannot take action on it. Thus, the turnover from your webshop may slowly drip away, or it may disappear entirely without you even knowing it. That is why it is vital to find out how you can calculate the service level for your webshop.

Calculate the service levels

You can calculate the service level of your products using the following formula:

Service level = (number of items in stock/total number of items in the assortment) x100.

This is the formula in theory, but as described above, we are not fans of manual calculations, and we are in favour of automation to reduce the margin of error. That is why we prefer to map this out with the right software.

At Optiply, we specialise in stock optimisation through data-driven purchasing. By calculating the service level, you buy in exactly enough so that you do not have to sell ‘no’ as often, you reduce inventory costs, and you buy in faster. Are you interested to know how this software can help your webshop optimise inventory? Then request a free demo of our software.

Book a demo

Improve your service level

All right, after calculating the service level, you will have a clear view. You now know which products you regularly sell ‘no’, and you can strive to make sure it is avoided in the future.

You can improve your service level – and ultimately your turnover – by taking these steps:

  • Mapping the turnover rate of specific products
  • A systematic approach to forecasting, planning and sourcing
  • Including seasonal influences in the calculations
  • Putting in a buffer stock
  • Automating stock management

These tips will help you improve the service level of your products and in the long run, increase customer satisfaction and sales. Want to know more about how automated software can help you do this? Read here how the features of our software contribute to cost savings and revenue increases for your shop.

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