What is Stock out cost?

Stock out cost is the cost associated with the lost opportunity caused by the exhaustion of the inventory. The exhaustion of inventory could be a result of various factors. The most notable amongst them is defective shelf replenishment practices. Stock outs could prove to be very costly for the companies. The more disastrous ones are the consumers may get frustrated, switch stores or even purchase substitute items

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One of the worst things that can happen to a business is to have a stockout. This means that with no inventory of a certain item, production has to be stopped or a customer order will not be fulfilled. For a warehouse or inventory manager it is a scenario that they most dread and with it comes a significant cost to the company. An optimised supply chain will help you supply your customers with what they want, when they want it - and prevent stockout situations.

If the item is vital to the customer, then they may be prepared to wait. Despite the goodwill of the customer, there may be significant damage to the customer’s satisfaction level.