Stockout
A stockout is a situation where the inventory for a requested item is completely depleted.
A stockout, or out-of-stock event, happens when a specific SKU is unavailable to fulfill a demand. This can occur with raw materials, work-in-progress (WIP) components, or finished goods. For a manufacturer, a stockout of raw materials can halt a production line. This leads to machine downtime and idle labor while waiting for a new shipment.
A stockout of WIP parts creates a bottleneck between manufacturing stages. For example, an assembly station may run out of subassemblies from the welding department, stopping all downstream work. A stockout of finished goods means the company cannot fulfill a customer order on time. This results in backorders, missed delivery dates, and potential loss of sales and customer trust.
Manufacturers prevent stockouts by using inventory management strategies. They calculate and maintain safety stock levels to buffer against unexpected demand or supplier delays. They also establish reorder points that trigger a new purchase order before inventory runs out. Systems like Material Requirements Planning (MRP) and Enterprise Resource Planning (ERP) use real-time data to forecast needs and manage inventory levels, reducing the risk of stockouts.
A CNC machine shop ran out of a specific 1/2 inch carbide end mill needed for a high-volume job. This stockout stopped a critical machine for a full shift. The delay pushed the entire order back by one day, resulting in an expedited shipping fee to meet the customer's deadline.
What is the difference between a stockout and a backorder?
A stockout is the event of having zero inventory for an item. A backorder is a customer order for an item that is currently out of stock.
How does safety stock help prevent stockouts?
Safety stock is a buffer quantity of an item held in inventory. It covers unexpected increases in demand or delays in replenishment from suppliers.
What are the main causes of stockouts in manufacturing?
Common causes include inaccurate demand forecasts, supplier delivery delays, poor inventory tracking, and unexpected production yield issues.
Can a stockout happen with work-in-progress (WIP) items?
Yes. If an assembly cell runs out of components supplied by an upstream fabrication cell, it is considered a WIP stockout.
How is the cost of a stockout calculated?
Stockout cost includes lost sales, the expense of expedited freight for replenishment, and the cost of production downtime (idle labor and machinery).
Safety Stock
Safety stock is extra inventory kept on hand to reduce the risk of a stockout caused by supply and demand volatility.
Reorder Point
ROPThe reorder point is the inventory level that triggers a new order to replenish a specific item.
Material Requirements Planning
MRPMaterial Requirements Planning (MRP) is a system that calculates the materials and components needed to manufacture a product based on production schedules.
Just-In-Time
JITJust-In-Time is a production strategy where items are created or delivered only as they are needed, minimizing inventory.
Lead Time
Lead time is the total time elapsed from when a customer places an order to when they receive the finished product.