What Causes Stockouts? How to Predict and Prevent Inventory Shortages

Stockouts occur when inventory runs out before replenishment arrives, leading to lost sales, expedited freight costs, and damaged customer relationships. Most companies experience 2-4 significant stockouts per quarter, but struggle to prevent them because they can't see the risk coming or understand root causes after the fact. This guide explains what causes stockouts, how to predict them, and how to build systems that prevent them.

What Is a Stockout?

A stockout (also called an out-of-stock or OOS) happens when a product is unavailable for sale or use because inventory has been depleted. Stockouts can occur at any point in the supply chain:

• Retail stockouts: Product unavailable on store shelves or e-commerce sites
• Distribution stockouts: Warehouse or DC cannot fulfill orders
• Manufacturing stockouts: Raw materials or components unavailable for production
• Safety stock depletion: Buffer inventory exhausted before replenishment arrives

Stockouts are different from backorders. A stockout means the product is simply unavailable. A backorder means the customer can still place an order for future fulfillment.

How Much Do Stockouts Cost?

Stockouts create both direct and indirect costs:

What Causes Stockouts?

Stockouts typically result from a combination of factors:

Demand-Side Causes

Demand forecast errors. Forecasts underestimate actual demand, leading to insufficient inventory. This is especially common during promotions, seasonal peaks, or when new products cannibalize existing SKUs.

Unexpected demand spikes. Viral social media moments, competitor stockouts, weather events, or news coverage can create sudden demand surges that outpace inventory.

Omnichannel complexity. Inventory allocated to one channel (retail stores) may not be visible or available to another channel (e-commerce), creating artificial stockouts.

Supply-Side Causes

Supplier delays. Late shipments, quality issues, or capacity constraints at suppliers push back replenishment timing.

Lead time variability. Actual lead times exceed planned lead times, causing inventory to deplete before replenishment arrives.

Transportation disruptions. Port congestion, carrier capacity issues, or logistics failures delay inbound shipments.

Planning and Visibility Causes

Safety stock set too low. Buffer inventory is insufficient to absorb demand or supply variability.

Reorder points miscalculated. Trigger points for replenishment don't account for current lead times or demand velocity.

Inventory visibility gaps. Stock exists somewhere in the network but isn't visible or accessible where it's needed.

Data latency. By the time inventory reports are generated, positions have already changed and stockout risk isn't visible until it's too late.

Why Companies Can't Prevent Stockouts

Most organizations struggle to prevent stockouts for three reasons:

1. They Can't See Risk Early Enough

Traditional inventory reporting is backward-looking. Weekly or monthly reports show what happened, not what's about to happen. By the time a stockout appears in a report, it's already occurred.

What's needed: Forward-looking visibility that identifies stockout risk 7-14 days in advance, giving teams time to rebalance inventory, expedite shipments, or adjust demand.

2. They Don't Understand Root Causes

When a stockout happens, teams struggle to answer: Was it a demand spike? A supplier delay? A forecast error? A safety stock miscalculation? Without clear root cause visibility, you can't prevent the next occurrence.

What's needed: Connected data that links inventory positions to demand signals, supplier performance, forecast accuracy, and replenishment timing so root causes are immediately clear.

3. They Can't Act Fast Enough

Even when teams spot emerging risk, acting on it requires manual escalation, cross-functional coordination, and system updates. By the time approvals are secured and orders placed, the stockout has already happened.

What's needed: Embedded workflows that automatically trigger alerts, create emergency orders, or initiate inventory transfers when risk thresholds are crossed.

How to Predict Stockouts Before They Happen

Effective stockout prevention requires moving from reactive reporting to predictive monitoring:

Monitor Days of Supply in Real Time

Track current inventory against current demand velocity (not historical averages) to calculate actual days of supply remaining. When days of supply drops below lead time plus safety stock buffer, risk is emerging.

Track Demand Velocity Changes

Watch for demand acceleration that could deplete inventory faster than planned. A 20-30% increase in velocity over 1-2 weeks is a warning sign.

Monitor Supplier and Logistics Performance

Track actual vs. planned lead times. If a supplier is running 5 days late on average, your reorder points need to account for that.

Set Risk Thresholds and Alerts

Configure automated alerts when:

• Days of supply falls below 2x lead time
• Demand velocity increases 25%+ week-over-week
• Supplier lead time exceeds planned lead time by 20%+
• Inventory at a key facility drops below minimum threshold

Model Scenarios

Simulate what happens if demand increases 20%, if a key supplier is delayed 2 weeks, or if a facility goes offline. Identify which SKUs are most vulnerable.

How to Prevent Stockouts

Once you can predict stockout risk, prevention requires fast action:

Short-Term Tactics (0-14 Days)

Inventory rebalancing. Transfer stock from facilities with excess to facilities at risk. This requires real-time visibility into inventory positions across all locations.

Expedited replenishment. Pay for faster shipping or air freight to accelerate inbound orders. Most effective when risk is identified early enough to make a difference.

Demand shaping. Reduce promotional activity, adjust pricing, or temporarily limit orders to slow demand while supply catches up.

Substitute products. Offer customers alternative SKUs that are in stock.

Medium-Term Tactics (2-8 Weeks)

Safety stock optimization. Adjust buffer inventory levels based on actual demand variability and lead time performance, not outdated formulas.

Supplier diversification. Qualify backup suppliers for high-risk SKUs to reduce dependency on single sources.

Lead time reduction. Work with suppliers and logistics providers to compress lead times and reduce variability.

Long-Term Tactics (Quarterly+)

Forecast accuracy improvement. Invest in demand sensing capabilities that incorporate real-time signals (POS data, market trends, weather) into forecasts.

Network optimization. Position inventory closer to demand to reduce lead times and improve responsiveness.

Supplier collaboration. Share demand forecasts with key suppliers and implement vendor-managed inventory where appropriate.

What Results Can Companies Expect from Stockout Reduction?

Organizations that implement proactive stockout prevention typically achieve:

Key Takeaways

• Stockouts cost companies 2-4% of revenue through lost sales, expedited freight, and customer churn
• Most stockouts are preventable with 7-14 days of advance warning
• Prevention requires real-time inventory visibility, demand velocity monitoring, and automated alerts
• Root cause visibility is essential to preventing recurrence
• Companies that implement proactive stockout prevention typically reduce stockout frequency by 50-70%

How Incorta Helps Predict and Prevent Stockouts

Incorta gives supply chain teams the real-time visibility and automated workflows needed to see stockout risk before it becomes a stockout.

A live digital twin of your ERP. Incorta's Direct Data Mapping creates a unified, real-time digital twin of your entire ERP and related systems. Every inventory position, every sales transaction, every inbound shipment is visible in its original granularity. You see stock levels and demand velocity across every facility without waiting for batch reports.

Forward-looking risk visibility. Unlike traditional BI that reports what happened last month, Incorta enables forward-looking intelligence. You see stockout risk 10 days ahead and rebalance the network before customers are impacted.

Root cause clarity. When stockout risk emerges, you immediately understand why. Incorta connects inventory data to demand signals, supplier performance, and forecast accuracy so you can see whether the issue is demand-side, supply-side, or a planning gap.

Automated alerts and workflows. When stockout risk crosses your thresholds, Incorta triggers alerts and can initiate action workflows automatically. Stock-out risk emerges, an emergency PO gets created. No manual escalation, no delays.

Unified view across systems. Inventory data lives in your ERP. Demand lives in your planning tool. Supplier performance lives elsewhere. Incorta unifies these sources so you can see the complete picture and act on it.

The result: teams see problems coming, understand root causes, and take action before stockouts damage the business.

See how other supply chain leaders are already winning with Incorta here.