Understanding Ecommerce Inventory Shortages: Causes, Impact, and Solutions

Nothing sours your store’s success like an inventory shortage. You want to capitalize on your demand – whether it’s a seasonal spike in orders, going viral on TikTok, or a blowout sale – but when you don’t have enough product on hand to meet that demand, you miss out on revenue and risk upsetting your customers.  

To help you avoid inventory shortages, let’s walk through their common causes, how to prevent them, and how expert inventory management and fulfillment partners like ShipBob can help. 

What is an inventory shortage? 

In other words, inventory shortages happen when a brand runs out of on-hand units of a certain product before they can fulfill all their orders for that product.  

This prevents the brands from making additional sales until they get more inventory, which essentially caps the amount of customer demand they can capture.   

The consequences of inventory shortage

An inventory shortage leads to a host of serious repercussions for your business, which will impact your bottom line. Some of the most common issues stemming from a shortage of inventory include:  

• Lost sales: When you don’t have enough inventory to sell, you miss out on the chance to convert your customers and generate sales. This translates to a loss of revenue, leading to decreased profitability. 
• High stockout costs: Inventory shortages lead to stockout, leaving businesses to incur high stockout costs. Stockouts also lead to other indirect costs, such as higher fees for expedited shipment to replenish your stock. 
• Customer dissatisfaction: When you don’t have enough products for customers to buy, it will automatically affect their experience with your business. Seeing that an item they want to buy is out of stock, having an item on backorder, and long wait times are leading causes of dissatisfied customers. 
• Cash flow issues: If you don’t have enough inventory to sell to customers, you’re not generating sales. This directly disrupts your cash flow, which could lead to financial shortages that disrupt other aspects of your operations. 
• Damaged brand reputation: A business that constantly experiences inventory shortages will eventually lose the trust of their consumers. Other symptoms of inventory shortages, such as slow fulfillment times and high volumes of backorders, also negatively impact the customer experience. 

How a lack of inventory impacts various industries 

The consequences of inventory shortage are common across all industries. However, inventory scarcity may hit every industry differently due to unique factors, such as supply chain attributes, consumer behavior, and the nature of products. Here’s a breakdown of some of the ways in which a lack of inventory impacts various industries. 

Manufacturing 

Companies in the manufacturing sector have other businesses relying on them to supply them with finished goods inventory. However, if they experience a shortage of raw materials inventory, it delays production, which disrupts the flow of goods further down in the supply chain. 

Inventory shortages in manufacturing could result in serious disruptions impacting the entire supply chain. If manufacturers don’t have raw materials inventory, suppliers don’t have finished goods inventory to supply to retail businesses. In other words, it creates inventory shortages across not only their supply chains, but across other industries as well. 

Retail 

In the retail sector, inventory shortage results in stockouts, which leaves you unable to fulfill customer orders. You may have to deal with backlogs and backorders and longer fulfillment timelines, which impact customer satisfaction and discourage repeat business. Alternatively, you may also lose customers to the competition when the product they want is unavailable at your store. 

Health and wellness 

Inventory shortages in the health and wellness sectors can be serious, as they could leave customers unable to quickly or effectively treat their medical needs. Shortages caused by logistical disruptions could also result in expired or damaged products being delivered, causing further problems in delivering care. 

Food and beverages 

The food and beverage industry is especially susceptible to inventory shortages as these businesses may keep a low stock to avoid dealing with excess and expired products. However, this leaves them vulnerable to stockouts, which prevents them from fulfilling customer demand. This has a serious impact on cash flow and customer satisfaction. In some cases, inventory shortages throughout the supply chain could lead to rising costs. 

Lessons from recent supply chain disruptions

Recent disruptions to the global supply chain serve as bywords warning of the dangers inventory shortages pose to businesses. The Suez Canal obstruction, for instance, resulted in massive disruptions that caused shortages further down in the supply chain. With 30% of container traffic flowing through the canal every year, the blockage served as a wake-up call indicating the need for businesses to diversify their suppliers. 

Additionally, shortages caused by the COVID-19 pandemic also highlighted the need for businesses to carry safety stock in preparation for unexpected disruptions. This could tide them over during periods of sudden demand spikes, logistical disturbances, and other inventory scarcity events. 

What causes inventory scarcity? 

Businesses may experience inventory shortage for a number of reasons, with both internal and external factors playing into it. Here are some of the most common causes, so you can identify and prevent potential shortages before they happen. 

Supply chain disruptions 

One of the biggest external factors leading to inventory scarcity is a disruption in the supply chain. Delayed shipments and transportation issues can create supply chain bottlenecks that trickle down to create inventory shortages. 

In some cases, a problem with the supplier or manufacturer could lead to longer lead times that affect inventory levels. Raw material shortages, natural disasters, labor shortages, and geopolitical disturbances are leading causes of disruptions that may lead to a shortage of inventory. 

Inaccurate demand forecasting 

While external forces like the ones highlighted above are often unforeseeable, businesses can also experience shortages due to internal factors like inaccurate demand planning. Any miscalculations or faulty data in your demand forecasting could result in inaccurate predictions. Additionally, failure to accurately predict demand spikes could affect your replenishment timing. 

As a result, you may fail to order enough inventory to meet customer demand, leading to stockouts. Alternatively, you may also order more inventory than you can sell, leading to overstocking. 

Logistical challenges 

Businesses may also experience various logistical challenges that cause shortages in stock.  

For instance, if you’re not fulfilling existing orders fast enough, you may not have the room to store more inventory, making replenishment a challenge. This makes it crucial to boost logistics efficiency throughout the supply chain. 

Inventory mismanagement is also a leading cause of inventory shortages. Failure to perform regular inventory counts can lead to inventory discrepancies, while failure to account for dead stock may significantly reduce your existing inventory without you realizing it. 

Additionally, if your sales and inventory systems aren’t properly integrated, your inventory data is more susceptible to errors. Sales that aren’t automatically entered into your inventory software result in you having significantly less physical inventory on hand than what’s displayed in your records. 

How to prevent and manage a lack of inventory 

Following inventory management best practices is the best way to maintain optimal stock levels. Let’s break down some inventory management processes that can help you prevent inventory shortage. 

Real-time inventory tracking 

Being able to see your stock levels in real time is the key to understanding your inventory needs. Real-time inventory tracking lets you see how many units you have on hand for a particular SKU. Your inventory tracking software and processes should integrate with your sales channels and warehouse management systems, so that inventory data is automatically updated when new orders are placed and fulfilled. 

This way, you can see when you’re running low on stock for that item and reorder more inventory before you actually run out of stock, giving you enough time to replenish your inventory and effectively meet customer demand. 

“We have over 5,000 SKUs, but that hasn’t been a problem for us in working with ShipBob. Their dashboard gives us visibility to inventory management, which has been excellent. ShipBob’s inventory counts are very accurate to what’s on-hand, and we can always see what we have available there. We also have an integration between our ERP, NetSuite, and ShipBob, so inventory data is always being fed back into NetSuite for us to view inventory counts there.”

Charlotte Katona, President of Makesy 

Predictive demand forecasting 

The ability to anticipate your future inventory needs is another vital step to preventing inventory shortage. This allows you to plan ahead and stock up on inventory in preparation for demand surges. 

Data-driven demand forecasting tools are crucial to accurately predict your inventory needs. These tools track historical sales data to identify demand patterns, enabling them to make intelligent forecasts about how much demand you’ll see for specific items so you can plan your procurement accordingly. 

“Order volume spikes and the ability to forecast them are challenging for any business. We’ve had campaigns that have resulted in 20x the order volume in 24 hours. If we were fulfilling our own orders, we would have struggled to find staff at such short notice. Working with ShipBob has given us more structure around planning and forecasting. ShipBob is consistently reaching out to ask about promotions so they can scale up fulfillment center processes and staff as needed. As a result, we’ve been able to more seamlessly accommodate large order spikes with ShipBob as our fulfillment partner.”

Michael Harper, Co-Founder of CRIMPiT, and Sean Togher, Finance Director at CRIMPiT 

Distributed inventory systems 

When you store all your inventory in one place, you’re more likely to get impacted by inventory shortage. Any stockouts or disruptions in the region could leave you with no backup option, making it difficult to effectively meet customer demand. This makes it crucial to diversify your inventory management with distributed inventory systems. 

Storing your inventory in more than one warehouse helps you ensure reasonable delivery times, as a stockout in one region won’t necessarily impact the rest of your operation because you can still fulfill orders using the inventory from another location.  

“In the first couple years of our business, our products were constantly going in and out of stock because of how quickly the brand was growing and how high demand was. We wanted to make sure we could get good inventory levels at each location, so we joined ShipBob’s Inventory Placement Program to improve inventory allocation and distribution across the US. IPP has been a game changer for us. First, it reduces costs for us, because we’re shipping more orders a much shorter distance. Second, and maybe equally as important, it’s reducing the time that customers have to wait to get packages. And we’re still not even leveraging ShipBob’s network to its fullest extent.” 

Tyler McCann, Co-Founder of Taste Salud

Maintaining safety stock 

While you don’t want to keep too much inventory on hand, only carrying just enough stock to meet demand can also be risky. It’s important to carry some sort of backup inventory – often called safety stock – to tide you over during unexpected demand surges or supply chain disruptions. 

It’s particularly important to have some buffer stock in industries that are prone to demand volatility. That way, you can be prepared with backup inventory to meet customer demand while you wait for your replenishment stock. 

Additionally, every business should keep some safety stock to keep them afloat during any disruptions affecting inventory supply. Calculate how much inventory to keep as safety stock depending on your daily usage and lead times so you can find the right balance. 

How ShipBob helps businesses mitigate inventory shortages 

ShipBob’s sophisticated inventory management technology and best-in-class fulfillment solutions are designed to give you more visibility into and control over your inventory, empowering you to maintain optimal inventory levels and prevent inventory shortages. 

Here are just some of the solutions that ShipBob merchants leverage to optimize their inventory management. 

Strategically distribute inventory across key locations with our Inventory Placement Program 

ShipBob’s Inventory Placement Program lets you strategically distribute your inventory across ShipBob’s global fulfillment center network. Using a proprietary algorithm based on your real order data, our software considers sales levels and demand patterns across different regions to smartly allocate inventory and keep your stock near the highest-demand regions. This takes the guesswork out of inventory distribution, allowing you to effectively meet customer demand using data-driven placements. 

As a result, you can prevent shortages in areas where specific items tend to see higher demand. This also reduces the need to repeatedly redirect inventory from another warehouse when you run out of stock in one location. That way, you can minimize delays (since orders are directly shipped out from the high-demand region instead of having to wait for backup stock from a different region). 

“Before IPP, we had a team of 3 people who were focused on distributing products correctly within the ShipBob network. In order to do that, we had to have a good understanding of the sales velocity in each region. They had to pay close attention to how stocked each warehouse was. Because if you don’t distribute products correctly, orders are going to ship from a farther warehouse which is going to cause longer transit times and cost more money. 

It was time-consuming for us to distribute and rebalance inventory on our own. With IPP, we can send products to one location and then ShipBob’s algorithms and technology use our historical order data to replenish inventory to each facility. That removes the responsibility from us. We can send inventory to one facility and then forget about it. We send our inventory to ShipBob once, they receive it, and they distribute it across their US network. We’re saving thousands of dollars each month by using IPP.”

Cesar Contreras, Head of Supply Chain of Wholesome Goods 

Predict demand and prevent stockouts with real-time analytics and forecasting 

ShipBob’s robust analytics play a vital role in effective inventory replenishment, giving you comprehensive data to understand SKU-specific performance and forecast demand. You can track key inventory metrics like SKU velocity, units sold per day, days of inventory left, and order destinations to make informed decisions about your inventory needs. 

With the platform tracking these inventory performance metrics over time, you can easily identify demand patterns and buying trends to accurately predict future demand. Combined with real-time analytics, you can easily anticipate demand fluctuations and stay prepared for seasonal surges or unexpected demand. 

Optimize inventory across a distributed network for faster, reliable delivery 

With ShipBob, you can take advantage of an expansive network of fulfillment centers to store your inventory. This includes dozens of ShipBob locations in the United States and fulfillment centers in Canada, Australia, Europe, and the U.K., which enables you to strategically optimize inventory levels across this network based on regional demand patterns and ensure sufficient stock availability where your customers need it the most. 

This allows you to ship out orders from the most convenient locations based on proximity and stock availability. As a result, you can significantly reduce transit times, ensuring faster deliveries and lower shipping costs. 

Moreover, with shorter transits, there’s a lower risk of transportation delays and logistical issues that could negatively impact your fulfillment timeline. This means you can provide fast and reliable delivery that enhances the customer experience. 

“Distributing inventory across the world with ShipBob drastically cut our transit times. When we were only shipping from our Miami, FL warehouse, it would take us 25 days to deliver an order to a customer in the EU, while using ShipBob’s UK fulfillment center, it takes only 3 days. That’s an 88% reduction in shipping time for those international customers!”

Rachel Tannenholz, President of Aroma360 

Gain full control over inventory tracking and replenishment with ShipBob’s WMS 

ShipBob’s warehouse management system comes with powerful tools to simplify inventory tracking and replenishment. It serves as a single source of truth to enhance inventory visibility so you can have better control over how you manage it. 

The WMS integrates with major sales channels, automatically processing your orders and getting them ready for fulfillment. Meanwhile, inventory movement is automatically entered into the system as your warehouse staff picks, packs, and ships orders to customers. That way, your inventory data is automatically updated as goods move in and out of the warehouse, ensuring real-time inventory information. 

As a result, you can instantly see when you’re starting to run low on stock, giving you enough time to put in a replenishment order before you experience a stockout. You can even set a reorder point notification, which will alert you when your inventory level hits a certain number, so you don’t forget when to replenish inventory and risk an inventory shortage. 

For more information on how ShipBob’s solutions can help you manage your inventory and avoid shortages, click the button below to get in touch.  

Inventory shortage FAQs 

Below are answers to the most commonly asked questions about inventory shortages.