Out of Stocks are costing you more than you realize
Out-of-stock situations at distributors can be costly for brewers in several ways.
- Lost sales: When a product is out of stock, the distributor is unable to fulfill orders from their customers, which means that they miss out on potential revenue. Can be upward of 10% – 25% of your sales.
- Substitution costs: If a distributor substitutes another brewer’s product for the original brewer’s product, the original brewer may miss out on potential sales and may incur additional costs in terms of servicing your distributors.
- Distributor Sales Focus: Prolonged out-of-stock situations can lead to sales reps at distributors avoiding selling a product that is chronically out of stock.
- Loss of consumers: Prolonged out-of-stock situations may lead to lost consumers for the brewery, which could negatively impact the brewer’s sales in the long term.
- Logistics and supply chain management costs: Shipping more frequently or inefficiently may lead to increased costs in terms of logistics and supply chain management, such as hiring additional staff or upgrading technology.
Lost Sales
Craft Portal reviews out-of-stock rates as part of the client discovery process, has found that typical brewers are running between 10% and 25% out of stock. This means that a significant portion of a brewer’s products are unavailable to customers at any given time.
Regardless of the size of the brewer, this represents real dollars in lost sales and profits. Out-of-stock situations can have significant consequences for brewers, including lost sales, substitution costs, increased inventory costs, and logistics and supply chain management costs. These situations can also lead to lost customers and negative reviews and word-of-mouth for the brand.
It is important for brewers to properly understand their out-of-stock rates and to make improvements on this key performance indicator in order to minimize the risks and costs associated with out-of-stock situations. This may involve working closely with distributors to ensure that there is sufficient inventory on hand to meet demand, improving forecasting and inventory management processes, and investing in logistics and supply chain management infrastructure. By taking these steps, brewers can help to ensure that their products are consistently available to customers and maximize their sales and profits.
Substitution Costs:
It can be relatively easy for a distributor to substitute another brewer’s product when they run out of a specific product. Distributors often have relationships with multiple brewers and may be able to quickly source a similar product from another brewery if they run out of a specific product. This is especially true if the product in question represents a small portion of the distributor’s overall business.
For example, a typical craft brewer’s product only represents 1% of a distributor’s total sales, the distributor is more likely to substitute another product in its place if they run out, rather than totally missing out on a sale. Just because this is an out-of-stock for one brewer never means that it is an out-of-stock for the distributor. This is especially true in the craft brewing industry.
Understand that distributors do not want leave tap handles open for the weekend, as this can lead to lost sales and is not attractive to retailers. In this case, substituting another product in the short term may be seen as a more attractive option.
Overall, while it may be easy for a distributor to substitute another brewer’s product in certain situations, it is important for brewers to work closely with their distributors to ensure that there is sufficient inventory of their products on hand to meet demand and avoid out-of-stock situations. This can help to minimize the risk of substitution and ensure that the brewer’s products are consistently available to customers and your distributor partners.
Distributor Sales Focus:
Prolonged out-of-stock situations can lead to sales reps at distributors avoiding selling a product that is chronically out of stock. This is because sales reps may not want to deal with the frustration of their customers when the product is not available.
Sales reps are often motivated to keep their customers happy and make their commissions as quickly as possible. If a product is consistently out of stock, it can be difficult for sales reps to do this. They may therefore choose to focus their efforts on promoting products that are consistently available, rather than trying to sell a product that is frequently out of stock.
Additionally, sales reps may be more likely to focus on promoting products from breweries that are reliable sources of products. This is because they want to avoid frustrating their customers with out-of-stock situations and instead offer them products that are consistently available.
Loss of Consumers:
Out-of-stock situations can have significant effects on consumer buying behaviors. When consumers are unable to purchase the products they want, they may be forced to try new brands as a substitute. This can lead to consumers trying new products that they may not have otherwise considered, and they may discover that they prefer these new products to their original choice.
If out-of-stock situations persist, it can lead to consumers permanently switching to new brands. This can be particularly damaging for a brand that has a loyal customer base, as it may lead to these customers defecting to other brands over time.
Additionally, out-of-stock situations can lead to frustration and dissatisfaction among consumers. This can lead to negative reviews and negative word-of-mouth for the brand, which can further impact sales.
Logistics and Supply Chain Management Costs:
If brewers think that shipping more frequently is the right answer to address out-of-stock situations, they may be willing to invest more in shipping in order to meet demand. However, this approach can be costly in several ways.
First, there are the direct costs associated with shipping, such as transportation fees, fuel costs, and labor costs. Shipping more frequently can lead to an increase in these costs, which can impact the brewer’s profitability.
Additionally, shipping more frequently may also lead to increased costs in terms of inventory management. For example, if a brewer is shipping more frequently to meet demand, they may need to increase their inventory levels to ensure that they have sufficient product on hand to meet the increased shipping schedule. This can lead to higher inventory-carrying costs and may require the brewer to invest in additional storage capacity.
Shipping more frequently may also lead to increased costs in terms of logistics and supply chain management. For example, the brewer may need to invest in additional resources to manage the increased shipping schedule, such as hiring additional staff or planning inefficient production schedules.
My distributors have big warehouses, why can’t they just carry more inventory?
Breweries may be having a more difficult time negotiating days of inventory (DOI) levels with wholesalers due to the increased competition in the market. With so many breweries and products available, wholesalers may be more selective in the products they carry and may be less likely to agree to carry higher levels of inventory for a specific brewery.
Additionally, it is not necessarily easy for a brewery to simply talk a wholesaler into carrying more inventory to cover up an out-of-stock issue. Wholesalers need to carefully manage their inventory levels in order to maximize profits and minimize waste. If a brewery is consistently experiencing out-of-stock situations, it may be seen as a risk for the wholesaler to carry higher levels of inventory for that brewery.
To successfully negotiate DOI levels with wholesalers, breweries may need to demonstrate the demand for their products and the potential return on investment for carrying higher levels of inventory. This may involve providing data on sales trends, consumer demand, and other factors that can help to show the value of carrying more inventory for the brewery’s products.
Ready to solve your out-of-stock issue?
Here are some solutions that brewers can consider to solve out-of-stock issues:
- Work closely with distributors to ensure that there is sufficient inventory on hand to meet demand: By collaborating with distributors to manage inventory levels, brewers can help to minimize the risk of out-of-stock situations.
- Improve forecasting and inventory management processes: By implementing more accurate forecasting methods and better inventory management systems, brewers can help to ensure that they have the right amount of product on hand to meet demand.
- Invest in logistics and supply chain management infrastructure: By investing in transportation and storage infrastructure, brewers can improve the efficiency of their supply chain and reduce the risk of out-of-stock situations.
- Monitor and analyze sales data: By monitoring and analyzing sales data, brewers can better understand the demand for their products and identify patterns that may be contributing to out-of-stock situations.
- Train sales staff: By training sales staff on the importance of inventory management and the potential impacts of out-of-stock situations, brewers can help to ensure that their sales team is aware of the importance of this issue and is equipped to take steps to minimize out-of-stock situations.
Work Closely With Distributors to Ensure There is Sufficient Inventory On Hand to Meet Demand:
Working closely with distributors to ensure that there is sufficient inventory on hand to meet demand is an important solution for brewers to consider in order to minimize out-of-stock situations.
There are several ways that brewers can work with distributors to manage inventory levels. One approach is to develop a clear understanding of the demand for the brewer’s products and to communicate this information to the distributor. This can help the distributor to better understand the level of inventory that is needed to meet demand.
Brewers can also work with distributors to implement forecasting and inventory management systems that can help to optimize inventory levels. By analyzing sales data and other factors, brewers and distributors can better predict demand for the brewer’s products and ensure that there is sufficient inventory on hand to meet this demand.
In addition to managing inventory levels, brewers can also work with distributors to develop strategies for managing out-of-stock situations when they do occur. For example, brewers and distributors may want to establish protocols for identifying and addressing out-of-stock situations as quickly as possible, and for communicating with customers about these situations.
Improve Forecasting and Inventory Management Processes:
Improving forecasting and inventory management processes is another solution that brewers can consider in order to minimize out-of-stock situations.
Accurate forecasting is crucial for managing inventory levels and ensuring that there is sufficient product on hand to meet demand. There are a variety of forecasting methods that brewers can use, including statistical forecasting, judgmental forecasting, and demand planning. By implementing the most appropriate forecasting method for their products and markets, brewers can better predict demand for their products and ensure that they have the right amount of inventory on hand to meet this demand.
In addition to forecasting, brewers can also implement inventory management systems that can help to optimize inventory levels and minimize out-of-stock situations. There are a variety of inventory management systems that brewers can use, including perpetual inventory systems, periodic inventory systems, and just-in-time (JIT) inventory systems. By choosing the most appropriate inventory management system for their products and operations, brewers can better control inventory levels and minimize the risk of out-of-stock situations.
Invest in Logistics and Supply Chain Management Infrastructure:
Investing in logistics and supply chain management infrastructure is another solution that brewers can consider in order to minimize out-of-stock situations.
Logistics and supply chain management involve the planning, coordination, and control of the flow of goods, services, and information from the point of origin to the point of consumption. By investing in logistics and supply chain management infrastructure, brewers can improve the efficiency of their supply chain and reduce the risk of out-of-stock situations.
There are several ways that brewers can invest in logistics and supply chain management infrastructure. For example, they may want to invest in transportation infrastructure, such as trucks or shipping containers, to improve the efficiency of their shipping operations. Additionally, brewers may want to invest in storage infrastructure, such as warehouses or cold storage facilities, to ensure that they have sufficient space to store inventory and meet demand.
Monitor and Analyze Sales Data:
Monitoring and analyzing sales data is another solution that brewers can consider in order to minimize out-of-stock situations.
Sales data can provide valuable insights into the demand for a brewer’s products and help to identify patterns that may be contributing to out-of-stock situations. By monitoring and analyzing sales data on a regular basis, brewers can better understand the demand for their products and make informed decisions about inventory management and other aspects of their business.
There are a variety of tools and techniques that brewers can use to monitor and analyze sales data. For example, they may use sales reporting tools to track sales by product, by customer, or by other relevant metrics. Additionally, brewers may want to use data visualization tools, such as charts and graphs, to make it easier to understand and analyze sales data.
Train Sales Staff:
Training sales staff is another solution that brewers can consider in order to minimize out-of-stock situations.
Sales staff play a key role in ensuring that the brewer’s products are consistently available to customers. By training sales staff on the importance of inventory management and the potential impacts of out-of-stock situations, brewers can help to ensure that their sales team is aware of the importance of this issue and is equipped to take steps to minimize out-of-stock situations.
There are several ways that brewers can train their sales staff on these issues. For example, they may want to provide training on inventory management best practices, such as forecasting and demand planning, and the importance of maintaining sufficient inventory levels. Additionally, brewers may want to provide training on how to identify and address out-of-stock situations and how to communicate with customers about these situations.
Now is the Time to Fix Your Sales Problem Though Solving Your Out-of-Stock Problem
Now is the time for brewers to focus on their out-of-stock issues and start working to solve the problem. Out-of-stock situations can have significant consequences for brewers, including lost sales, substitution costs, decreased sales focus from distributors, lost customers, and increased logistics and supply chain management costs. These issues can be especially challenging in today’s competitive and rapidly evolving craft brewing industry.
As brewers gain an understanding of the root causes of out-of-stock situations, they can begin to identify and implement solutions that will help to solve the problem. By addressing the underlying causes of out-of-stock situations, brewers can minimize their risks and costs and ensure that their products are consistently available to customers.
By tackling their out-of-stock issues head-on, brewers can position themselves for growth and success, even in challenging industry conditions. Brewers who are poised to win will do so by ensuring that their products are consistently available to customers, brewers can maximize their sales and profits and build a strong, sustainable business.
It is important for brewers to take proactive steps to address their out-of-stock issues and drive growth in their business. Contact our team of experts to show you how the Craft Portal can help minimize your out-of-stock issues.