Without carrying huge amounts of inventory, it is impossible to avoid stock outs completely given the variations that can happen in the real world with volatile customer demand and supplier performance.
However, when they do happen, it is important to do a root cause analysis to determine why the stock out happened, and see if trends emerge over time that can lead to corrective action.
StockIQ has a root cause analysis tool in the stockouts screen that you can do to help augment this discovery process.
The most common causes of stock outs are:
- Purchase orders being late from your vendor / incorrect lead times
- Unusual demand spikes
- Under-forecasting an item that is growing quickly
Start with the Stock Outs Screen in StockIQ, and make use of the columns therein, that may provide some initial hints - see the Stock Outs Screen section for more.
Once you have some initial ideas, here are the broad categories of things to check:
Verify Lead Time Accuracy
Supply-side variability or inaccurate data can be one of the biggest causes of stock outs. Check for:
- Do you have an open, late PO?
- (Check Open Supply Orders Screen)
- Was lead time unusually long on an open PO for this item, and the PO is late?
- (Check the Open Supply Orders screen)
- Does the lead time in StockIQ accurately reflect reality? E.g. if StockIQ is being told the lead time is 10 days, but it's actually 20 based on recent performance, then this can lead to stock outs. (Check the Lead Time Viewer for recent receipt history)
- Is there an Item-Site-Supplier or Supplier-Site lead time override for the affected item, and is it correct? (Check the Lead Time Overrides page)
- Does this supplier consistently underperform, and is it time to look for an alternate supplier? (Check the Vendor Scorecard)
Verify your Safety Stock & Service Level Targets
Make sure that your safety stock value seems appropriate for the level of demand this part has, as well as its service level target and importance to your organization:
- Does the service level target seem appropriate? Is the item classed appropriately? (Enter a SS override if necessary)
- Is there a safety stock override in place? Is it old/outdated (Check the Safety Stock Overrides page)
- Does this item have a history of large demands that cause stock outs (Consider enabling Large Regular Pull safety stock if it is not already enabled)
Verify Forecast
If an item is undergoing a rapid increase in demand, e.g. very fast month-over-month growth, then the auto forecast from StockIQ can sometimes lag the new demand profile substantially enough to have you dipping into safety stock more deeply than you should.
- Is the forecast too low and/or lagging growth? (Check the item in Forecast Manager, enable Bias Detection if necessary, or put in a short-term manual forecast)
- Is the item new, and there simply isn't enough demand history for a good stat forecast? (Enter a manual forecast until sufficient demand history is built up to make a more accurate auto-forecast)
- Was there an old manual forecast that was too low?
- Correct the forecast and pay more attention to your Forecast Vs Actuals and Manual Forecasts Screen.
- Was this simply a random event?
- Was this a one-time unusual occurrence that should be marked as an event?
- Has there been a shift in demand that requires a change such as a manual forecast or Model Adjustment?
Vendor Issues
- Did the vendor drop the ball?
- Do you need to consult with them?
- Do you need to find an alternate supplier?
Other
- Have you been diligent in monitoring Alerts?
- Did this involve some other error on our part? If so, what?
- Did StockIQ have incorrect data from the ERP system?