Why is it essential to optimize product availability at the storage location?
The preparation and delivery of orders within the established deadlines are partly dependent on the availability of products in the warehouse. An insufficient quantity of goods does not allow orders to be fulfilled on time, which can have serious consequences on the company's image and turnover. This applies to both e-tailers and companies with a physical sales outlet. This is where we understand the importance of forecasting stock shortages, in order to anticipate and act before it is too late.
However, we also tend to forget that too many products stored in the warehouse can have equally harmful consequences. It is therefore not a question of obtaining a maximum availability rate, but of finding the rate that best meets the needs and constraints of the customer and the company.
Optimize availability to avoid missing a sale
A product that is not available in the warehouse means that it cannot be delivered to the store or directly to the end customer. Studies clearly show that this immediate unavailability can have significant consequences on sales, via several processes:
- in case of unavailability, the consumer can simply do without the product if it is not a necessary or important purchase: the sale is lost;
- if the consumer needs an item and cannot find it at a distributor, he may decide to turn to another store or another e-commerce site: the sale is lost and the consumer risks becoming a regular customer of a competitor if he satisfies his needs;
- when the customer is attached to a brand, but cannot get the product at the moment, he may decide to postpone his purchase: the sale is not lost, but the sales forecast may be biased by this type of behavior;
- in 12% of cases (study conducted by Marsch & McLennan), the customer will turn to a less expensive product if the one he was planning to buy is not available: a sale is indeed made, but the turnover is affected.
A warehouse availability rate that is not optimal, and which therefore does not allow orders to be filled, clearly impacts sales and, ultimately, turnover. The optimization of this rate is therefore one of the major challenges for the sustainability and development of a company.
Improve the availability rate to satisfy the consumerBeyond the missed sales it causes, unavailability can also have consequences on the level of customer satisfaction and on the company's image. In today's competitive environment, where it is easy to compare, consumers find it easier to switch from one brand to another if they are dissatisfied.
And we know to what extent consumers are increasingly demanding companies capable of responding quickly to their needs. Unavailable goods can then lead to several phenomena that will prove to be harmful for the company:
- the consumer feels frustrated by the lack of stock, which has a negative impact on his satisfaction level;
- if a company does not meet a need because of unavailable products, it may simply lose customers who will have found their happiness with another distributor;
- in some cases, consumers who cannot obtain a product because it is unavailable will opt for an alternative solution at the same or higher price: they find a solution to their need, but this requires them to do additional research, spend more, etc.
The risk of a non-optimized availability rate is therefore to lose a part of the clientele or to fail to retain them because of the poor quality of the service offered. However, loyal customers are generally more profitable and will tend to encourage positive word-of-mouth.
Have an optimal stock to reduce costs
The availability of products in the warehouse is of course also a major issue for the management of the Supply Chain and the related costs. It is necessary to know how to optimize the stock in order to satisfy the downstream demands, while limiting the financial burden represented by an over-stocking. Indeed, several problems result from an availability rate close to 100% and from goods accumulating in the warehouses:
- the larger the inventory, the higher the variable and fixed costs, despite the potential economies of scale;
- in certain sectors of activity (food or pharmaceutical for example), the stock devalues very quickly and even becomes perishable, which implies financial losses;
- stocked items correspond to fixed capital, which does not generate any cash flow.
Moreover, it is important to remember that storage costs do not only concern the holding of articles, but also the ordering costs. The implementation of an optimized availability management must therefore at the same time allow for the optimization of upstream logistics processes. For example, it is easier to predict the exact quantity of goods required and to pool transport from the production site to the warehouse. And this logic also works downstream: if ordered items cannot be shipped immediately because they are not available, the company will have to make up for late deliveries, perhaps by using a more expensive express transport service.
Adopt the right product availability rate to facilitate organization
The issue of supply and the quantity of items available also affects the organization of part of the supply chain. As soon as products are not available in sufficient quantity, this will effectively impact the usual processes within the warehouse. For example, new replenishment orders will have to be placed at short notice, pressure will be put on the production line, product replacement procedures will have to be put into place, etc.
All in all, this can result in a global disorganization of the Supply Chain, which can also demotivate employees and reduce their productivity. By dealing with frequent out-of-stocks or constant overstocking, the work required is more substantial, but it does not produce added value.
Aim for optimal availability to anticipate hazardsAs you can see, the real challenge is to achieve an optimal quantity of items: neither too much nor too little. A classic warehouse management software can help to get closer to this ideal availability rate. But it must take into account all the internal and external factors that can influence sales and therefore the level of stock required.
To compensate for this type of shortfall, it is therefore essential to determine a safety stock. The purpose of this part of the stock is to preserve the warehouse from any shortage, in the face of uncertainties on the suppliers' delivery times, the seasonality of the products, an unexpected peak in demand, a health crisis, etc. Carefully calculated, this safety stock provides a solid basis for preventing shortages and ensuring a sufficient service rate. However, it is not sufficient to ensure optimal availability, as it is not the "ideal stock", but the "buffer stock".
Responding to these challenges with intelligent prediction
All the logistical, commercial and financial challenges of warehouse availability should not be taken lightly. Fortunately, powerful predictive solutions provide companies with the means to know precisely how much inventory is required. By implementing a forecasting system for sales, promotional offers, delivery times, etc., one can effectively anticipate the optimal rate for each item.
For quality forecasts, these intelligent solutions use historical sales data, import data from competitors, study the flow of goods, analyze market opportunities, etc., and operate with the help of innovative Machine Learning programs. Nothing is left to chance, so as to know the optimal stock and to be responsive. The result is that customers get the items they want without delay, and logistics costs are optimized, which ultimately leads to greater profitability.
Of course, this does not only depend on the availability of the right quantity of products, and should not make us forget the importance of all the links in the logistics chain (order picking process, efficient transport and distribution system, efficiency of the warehouse employees, etc.).