Product Availability

“Inventory is an essential but challenging aspect of achieving high product availability”

Product availability refers to the presence and accessibility of a particular product in the marketplace. It refers to whether a product is in stock and available for customers to purchase. Product availability is an important KPI of retail and e-commerce operations because it directly affects customers’ ability to obtain desired products.

The equation is straightforward: Having enough stock is key to achieving high product availability:

No Stock/Inventory = No Sale

No Sale = No Profit

Product availability can be influenced by several factors, including manufacturer production capacity, distribution networks, inventory management practices, and demand expectations. Businesses must maintain optimal product availability to meet customer demand, exceed expectations, and maximize sales margin.

A product may be considered available when it is present in a store or warehouse, and its stock status reflects that it is in stock and ready to sell. In the case of e-commerce, availability also includes listing a product on a website or online marketplace and displaying accurate inventory information to potential buyers.

Businesses often strive to ensure high product availability by implementing effective supply chain management strategies, inventory control systems, and demand forecasting techniques. This helps them meet customer expectations, prevent stock-outs and minimize lost sales opportunities. In addition, product availability may be affected by factors such as seasonal demand, product lifecycle, and geographic distribution.

In a dynamic marketplace, retailers must effectively manage product availability by striking a balance between meeting customer expectations and controlling the costs associated with maintaining inventory.

Before proceeding, it is crucial to acknowledge the multitude of product availability issues that businesses encounter daily. Here are some of the common challenges they face:

Supply Chain Bottleneck: Managing a supply chain can be complex, especially when dealing with multiple suppliers, transportation logistics, and distribution channels. Coordinating and synchronizing these elements to ensure timely product delivery can be challenging.

The COVID-19 pandemic and subsequent lockdowns have presented one of the most significant examples of supply chain disruption in recent history. Additionally, the invasion of Ukraine by Russia and the subsequent blockade and unrest have caused significant disruptions to commodities worldwide, particularly in Europe.

Demand Forecasting: Accurately predicting customer demand is critical to maintaining optimal product availability. However, demand forecasting can be challenging due to changing market trends, seasonality, and unforeseen events, which can lead to backlogs or stock-outs.

Inventory Management: Balancing inventory levels is vital to avoid having excess inventory draining funds or insufficient inventory leading to stock-outs. Efficient inventory management includes maintaining proper inventory levels, minimizing carrying costs, and ensuring efficient order fulfillment.

Production Capacity Constraints: Limited production capacity can affect product availability, significantly when demand exceeds supply. Manufacturers must optimize their production processes and ability to meet market demands efficiently.

Lead Time and Order Fulfillment: Longer lead times for purchased products or delays in order fulfillment may affect product availability. To meet customer expectations, businesses must streamline their procurement process, minimize lead times, and ensure timely delivery.

Seasonal and unpredictable demand: Certain products may experience seasonal peaks in demand, making it challenging to ensure availability during peak times. Additionally, unforeseen events such as product recalls, natural disasters, or supply chain disruptions can disrupt product availability.

During the summer, the demand for products such as air conditioners, coolers, and refrigerators tends to surge as people seek ways to beat the heat. Similarly, during the COVID-19 pandemic, there has been an unpredictable demand for items like hand sanitizers, face masks, and disinfectants.

Competitive Pressure: In a fiercely competitive market, businesses face a multitude of product offerings from their competitors. To attract and retain customers, businesses launch their product offerings. However, failing to meet customers’ expectations and address their needs can lead to diminished market share and revenue loss.

Supplier and Vendor Issues: Businesses are dependent upon external suppliers and vendors results in a potential risk to product availability. Delayed deliveries, quality issues, or supplier capacity constraints can affect the availability of critical components or finished products. Building strong relationships, conducting regular performance reviews, and diversifying the supplier base can help mitigate these risks.

Missing Data: When crucial data related to inventory levels, demand forecasting, or supply chain information is missing, businesses face challenges in effectively managing their product availability. Without accurate and up-to-date data, making informed decisions about inventory replenishment, production planning, and meeting customer demand becomes difficult. This can result in stockouts, excess inventory, inefficient order fulfillment, and dissatisfied customers. To mitigate the effects of missing data, businesses must prioritize data collection, analysis and ensure robust data management systems to maintain optimal product availability.

Here are concise explanations of advanced concepts related to product availability:

Just-in-Time (JIT): JIT is an inventory management strategy where products are ordered and delivered based on actual customer demand. This approach minimizes inventory carrying costs and reduces the risk of stock-outs; therefore enhancing efficiency. JIT requires close cooperation with suppliers and accurate demand forecasting. JIT is also synonymous with the Toyota Production System (TPS) since Toyota, the automobile manufacturer, implemented this system during the 1970s. In the case of order placement by a customer, Toyota follows the practice of receiving raw materials at the factory only when it is ready to commence automobile production. This approach effectively reduces the costs associated with holding inventory.

Kanban is a scheduling system frequently employed alongside JIT to prevent the accumulation of excessive work in process and maintain optimal capacity levels.

The effectiveness of the JIT production process hinges on consistent production, excellent workmanship, minimal machine breakdowns, and dependable suppliers.

Backordering and Pre-orders: Companies often offer back-ordering or pre-ordering options for products that are temporarily out of stock. This allows customers to pre-order products and ensures they receive them as soon as they become available again.

Pre-orders are advance orders placed for products that have not yet been released in the market, and consequently, these products are not currently available in stock. These orders are aptly called “pre-orders” since they represent early reservations for items still in the planning or production stage.

Conversely, backorders are orders placed for products that have already been released but are temporarily unavailable due to being out of stock. These orders are termed “backorders” because the products were previously in stock and will be restocked in the near future but are currently unavailable due to factors such as high demand, inaccurate sales forecasting, or operational discrepancies.

Multi-Channel Retailing: To increase product availability, the company employs a multi-channel retail strategy. This involves selling products through various channels such as physical stores, e-commerce sites, mobile apps, marketplaces, and social media platforms. Companies enhance customers’ purchasing convenience and increase the probability of product acquisition by offering multiple buying options. While the ultimate purchase may occur through any of the available channels, the combined impact of these diverse channels collaboratively supports the decision-making process, enabling customers to choose their preferred method of purchase.

For example, Apple employs a multi-channel strategy encompassing both online and offline sales channels. Online sales channels include third-party marketplaces like Amazon, eBay, and country-specific platforms. Offline sales channels consist of Apple’s extensive network of retail stores and partnerships with various electronics-based retail outlets.

Safety Stock and Buffer Inventory: Safety stock is extra inventory held in place to cushion unexpected fluctuations in demand or supply chain disruptions. In situations of supply uncertainty, safety stock is consistently maintained in warehouses as a proactive measure. Serving as a reliable insurance policy against stockouts, safety stock mitigates the risk of depleting raw materials inventory, finished goods inventory, or packaging supplies. The primary objective of safety stock is to ensure an adequate inventory level to accommodate unforeseen shortages. Its purpose is to safeguard against the depletion of finished goods inventory and the potential loss of customers who are ready to make purchases.

Buffer stock is the quantity of inventory maintained to mitigate fluctuations in customer-induced variations or sudden spikes in demand. It serves a similar purpose to safety stock and is often referred to as “buffer safety inventory.” Buffer stocks are strategically deployed at various stages of the supply chain as contingency reserves. These inventory buffers help prevent stock-outs and maintain product availability during unforeseen events.

Dropshipping: Dropshipping is a fulfillment method in which the retailer does not keep an inventory of the product. Instead, they work with suppliers (third parties or drop shippers) to ship products directly to customers. This approach eliminates the need to maintain inventory and allows retailers to offer a wide range of products without worrying about availability. The key distinction between dropshipping and the traditional retail model lies in the inventory management approach. Unlike the standard retail model where the selling merchant owns and stocks inventory, in dropshipping, the seller does not keep inventory in stock. Instead, the seller procures inventory on demand from a third party, typically a wholesaler or manufacturer, to fulfill customer orders.

By 2027, the dropshipping industry is estimated to attain a staggering value of $591.77 billion.

During the 2000s, Amazon and eBay revolutionized online selling, enabling individuals like you to engage in e-commerce. Both platforms, Amazon and eBay, support dropshipping; however, they charge dropshipping fees. For instance, Amazon deducts 10% to 15% from your profits. Nonetheless, leveraging Amazon’s vast user base of over 300 million active users with strong purchasing intent can significantly enhance your visibility and sales potential.

Vendor-Managed Inventory (VMI): In VMI, suppliers are responsible for managing inventory levels at retailer locations. Suppliers monitor product usage, replenish inventory, and ensure product availability according to predefined agreements. VMI increases product availability while reducing inventory carrying costs for retailers. A vendor-managed inventory system offers several advantages, including improved inventory accuracy, forecasting, and service levels. However, it can also pose challenges related to communication, cultural resistance, and establishing clear lines of responsibility.

Walmart is a prominent example often associated with Vendor-Managed Inventory (VMI). In Walmart’s VMI system, suppliers or vendors bear the responsibility and accountability for managing their inventory within Walmart’s designated warehouses. Another notable illustration of VMI is observed in Amazon’s operations. Recent statistics indicate that third-party sellers contribute to over 58% of the products available on Amazon’s website, highlighting the significant role of vendor-managed inventory in Amazon’s business model.