How much are Stock-outs Really Costing You?

Joe Graci News

There’s been a strong trend towards industrial B2B marketplaces for one simple reason – stock-outs can cost distributors more than just a potential missed sale. Consider the following:

1) Stock-outs affect a distributor’s customer fill rate – the key measure for fulfilling orders from “in-stock” inventory. If 80% of your customer quotes are from “in stock” inventory, you’re doing pretty good. But what about the other 20%? If a distributor quotes $5M/month, this means $1M worth of quotes each month needs to come in from suppliers or other warehouses. At $10% margin this works out to be $100k/month AT RISK of going elsewhere!

2) Assuming a distributor can secure inventory from other suppliers (e.g. other distributors), the process can take 2-3 days end-to-end. The distributor rep needs to “call/email around” to get quotes & availability, compared prices & delivery dates, select a supplier, work out logistics, exchange documents (MTR’s, invoices, etc), then manage the process until the customer receives their product. Using traditional desktop tools, this can be a very tedious & time-consuming task. Now imagine doing this all over again 5, 10, or 20 times per week? It’s easy to lose sight of customer opportunities.

3) What if a distributor simply doesn’t stock an item? For example, the distributor sells pipe & tubes and the customer asks for bars. Should a distributor turn them away and give up the opportunity to earn more share of the customer’s wallet?

4) Most distributors get into overstock situations because it’s difficult to predict market demand 6, 8 or even 12 weeks out. Then the market changes and the distributor’s stuck with products causing aged inventory or liquidation losses. Distributors don’t want to lose business but they also don’t want to overstock. What if there was a better way to match the market’s demand with industry supply?

5) Distributors often don’t pull timely or actionable data on what they’re buying from other distributors. What if distributors can reduce overstock costs and increase their fill rate at the same time with better data? It’s not impossible with the right tools & data analytics.

As you can see, stock-out situations cost a lot more than a potential sale. Consider sales/procurement administration costs for processing buyouts, lack of data or insights into channel inventory flow patterns, customer fill rate, and how much overstock situations are costing the distributor. Most traditional tools & systems simply don’t effectively address this problem, that’s why B2B (or D2D) marketplaces are becoming an increasingly popular tool for real-time access to inventory that are “stuck” in supply chains.

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