Stock-out or shelf out-of-stock: which costs more?

Two out-of-stocks, two definitions

The stock-out: the store no longer has the product, neither on the shelf nor in the back room. Book stock is at zero (or should be), the order is placed or late, the cause is upstream or in the order: forecast, supplier lead time, warehouse.

The shelf out-of-stock (on-shelf availability gap): the shopper cannot find the product on the shelf, but the product is in the store, in the back room, on a waiting pallet, elsewhere in the aisle, or only in book stock. The system sees nothing abnormal.

The two look alike for the shopper, who leaves without the product in more than one case in two according to the study by Gruen, Corsten and Bharadwaj. They are opposites for the manager.

Why the shelf out-of-stock costs more

Three reasons, which add up.

It lasts longer. A stock-out ends at the next delivery, and the system flags it. A shelf out-of-stock ends when someone sees it: at the next walk, the next day, or never if book stock is wrong. As lost sales are proportional to duration, an out-of-stock that lasts three hours costs three times one that lasts an hour.

It repeats. A stock-out has a one-off cause. A shelf out-of-stock has a structural cause: facing too short, replenishment too early, phantom stock. Until the cause is treated, the same reference is missing every day at the same time.

It is the majority. According to Corsten and Gruen, 72% of out-of-stocks have their cause in the store, that is, fall under the shelf out-of-stock in the broad sense: local ordering, replenishment, book stock. Inventory management tools handle the remaining 28% well and do not see the others.

The right lever for each

	Stock-out	Shelf out-of-stock
Where it shows	in the inventory system	on the shelf, to the shopper
Typical cause	forecast, supplier, warehouse	facing, replenishment, phantom stock
What ends it	the delivery	someone who sees it and fills
Tool	forecasting, order parameters, supplier tracking	shelf count, facing, replenishment passes, continuous detection
Measure	supplier service level, book stock	on-shelf out-of-stock rate counted on the shelf

The most common trap: measuring out-of-stocks with book stock and concluding all is well. The rate that matters is counted on the shelf, as explained in on-shelf out-of-stock rate: how to calculate it.

An example

Two references in the same aisle, each selling 20 units an hour in the evening.

• The first is in stock-out: the supplier delivered late, it is missing from opening to the next day’s delivery, 12 hours, once in the month. Real lost sales (55%): 20 × 12 × 55% = 132 units.
• The second is in shelf out-of-stock: facing of 12 units, morning replenishment, it is missing from 5 pm to closing, 4 hours, every day. Real lost sales: 20 × 4 × 55% × 22 days = 968 units a month.

The shelf out-of-stock, invisible in the system, costs seven times more than the stock-out, visible and handled. The calculation is detailed in how to measure sales lost to out-of-stocks.

What shopper reporting changes

The shelf out-of-stock has only one reliable witness: the shopper in front of the shelf. With ShelfAlert, they scan the missing product in two seconds; the manager receives the alert, tells the two cases apart at once by comparing with book stock, and pulls the right lever. 14-day trial, no payment card: see the plan for store managers.

Sources

• Corsten, Gruen, “On Shelf Availability”, 2004: summary.
• Gruen, Corsten, Bharadwaj, “Retail Out-of-Stocks: A Worldwide Examination”, GMA, 2002: full study (PDF).
• On-shelf availability in UK retailing: On-Shelf Availability and Out-Of-Stocks in UK Retailing.