What is the Difference Between Stockout and Shortage in Terms of Inventory Management?

Stockout vs. Shortage  

Lots of people believe that inventory management can be done easily. Inventory management is not a simple task especially when you have multiple work locations. There are several issues that can occur in inventory management which can be harmful to business. One of the major inventory management issues is stock-out.  

However, lots of people use stock-out in the place of inventory shortage & vice versa. But both are different terms. What is the difference between them? That we will discuss in this blog now! So, without further ado let us begin.  

What is Stockout?

Stockout is one of the most common issues that occur in sectors that are heavily equipped with the inventory. These sectors are retail, manufacturing, hospital, etc. Stockout occurs when inventory is not available to provide to customers. It happens when demand increases but supply from the manufacturer is not happening. Also, when demand exceeds, and safety inventory is low. Stockout is also known as out of stock  

Stockout is a dangerous situation from a business point of view as you not only lose potential customers (business sales), but the chances are this client will go directly to your competitors. It impacts brand image and revenue.  

What is a shortage?

According to Answers to all, “Inventory shortage occurs when there are fewer items on hand than your records indicate, and/or you have not charged enough to the operating account through the cost of goods sold.”  

As the name suggests itself, the shortage is something that is not available in simple terms. The customer is willing to buy a product, but it is not available. The shortage is one of the main reasons behind stock-outs.  

Here are a few examples that will help you in understanding the shortage! Suppose you want to buy a shirt, but your specific size is not available then it is stock-out. When there is too much demand, but an organization is not able to manufacture that part that is a shortage as manufacturing workers are not available  

We have seen several times that in online sales products are sold out within minutes and stock-out occurs. The reason is there are only limited products available for purchase, which is a shortage.  

Recommend To Read: What is stock audit? Why is it done and what are the stock audit processes?

What is Inventory Management?

Inventory management provides a strategic approach to manage the right level of inventory in all locations so that inventory-related issues can be avoided. Inventory management helps organizations in many ways!  

If inventory management is not done in the right way, then you will notice increased warehousing fees, wastage of inventory, slow-moving products, out-of-stock or overstocking, inventory misplacement, and numbers of inventory will not match with physical inventory availability.  

In order to avoid these types of issues inventory management software is essential it eliminates the manual inventory management process and automates the whole process as a result operations are more organized, inventory numbers are accurate, and products move fast.  

All the major issues related to stock decreases as well. Inventory management software provides a complete view of your inventory so that you can use it in the right way. It also offers real-time information through which you can know how much inventory is available and whenever the inventory is below the defined level it will alert the responsible person and the inventory refilling process will be initiated. You can set the re-order level for inventory. It is helpful getting complete control over inventory.  

Missed To Read: What you should need to know about Inventory Management?

What is the difference between stockout & shortage?  

Stockout is a product that is not available to consume or purchase whereas shortage can be the reason behind stockout.

Shortage can be related to anything, for instance, shortage of manufacturing parts or labor shortage, or raw material shortage. Due to shortage, the final product is not ready or slow production occurs and stockout occurs more frequently.

Stockout is a technical term that is used for the product, and inventory whereas shortage is a term that can be used in regular form, for instance, there is a shortage of vitamins in your body rather than saying there is a stockout of vitamins in your body.

Conclusion

Shortage, and Stock-out are one of the main problems in inventory management. However, with Asset Infinity’s inventory management software, you can avoid these problems. As this software alerts the team members in real-time and keeps track of inventory numbers. As a result, whenever inventory is about to finish it notifies the responsible member for this member will initiate the stock refilling process. This software is helpful in eliminating stock-out issues.

There is no doubt that this software can be very helpful in effective inventory management. It will provide several benefits that will assist you in growing your business. If you want to take your business to a new level, then this software is essential.

Also Read: What is Stocktaking? Major Difference between stocktaking & stock checking

Frequently Asked Questions (FAQs)  

1. What is the market size of inventory management software?  

According to Global Market Insights, “Inventory Management Software Market size crossed USD 3 billion in 2019 and is estimated to grow at a CAGR of over 5% from 2020 to 2026.” We can clearly say that the inventory market is huge and for better inventory tracking you can utilize inventory tracking techniques that assist organizations in accurate inventory tracking.

2. Why do stockout situations occur?  

Stockout mainly occurs due to many reasons such as wrong data entry of inventory numbers (human error), inventory shrinkage, inventory theft, inaccurate inventory forecasting, shortage from the manufacturer's end, and so on. These are a few of the main reasons which lead to stockout occurrence.  

3. What happens when a stockout occurs?  

Below we have given the outcome of stock-out occurrence:  

1. Damage to brand

2. Customer retention decreases

3. Poor customer experience

4. Potential sale loss

5. Top & bottom-line decreases

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