A stockout is more than a missed sale. It's a disappointed customer who might not come back, a disrupted production line, or a retailer who decides your brand isn't reliable enough to carry. And yet stockouts happen constantly, even to businesses that think they have a handle on their inventory.
The root cause is almost always the same: inaccurate stock data. If your records say you have 50 units but you actually have 12, every decision you make based on that number is wrong. This guide covers how to keep your stock levels accurate and set up systems that warn you before you run out.
Why Stock Levels Go Wrong
Understanding why stock numbers drift is the first step to fixing them. Here are the most common culprits:
Unrecorded movements. Someone grabs items from the shelf for a sample, a replacement, or a rush order and doesn't record it. Each unrecorded movement is a small error that compounds over time.
Receiving errors. A supplier sends 48 units but the purchase order says 50. If you don't count incoming goods and just book the PO quantity, you start with a discrepancy from day one.
Picking mistakes. A picker grabs 3 units instead of 2 for an order. The system thinks you have one more unit than you actually do. Multiply this across hundreds of orders and the numbers diverge quickly.
Damaged or expired stock. Products that get damaged, expire, or become unsellable still show as available in your system until someone explicitly removes them.
Returns not processed. A customer returns an item but it sits on a shelf without being scanned back into inventory. Your system doesn't know it's there, so you might reorder unnecessarily while sellable stock collects dust.
The common thread is that physical reality and digital records get out of sync. Your job is to keep them aligned.
Record Every Stock Movement
This is the most important habit in inventory management. Every time stock changes - up, down, or sideways - it needs a record. That means:
Goods in: count and verify every delivery against the purchase order before booking it into your system. Don't trust the packing slip - count the physical items.
Goods out: confirm every pick and shipment. If you can use barcode scanning to verify picks, even better. The few seconds spent scanning each item saves hours of investigating discrepancies later.
Adjustments: when you find damaged stock, write it off immediately with a reason. When you use inventory for samples or internal purposes, record it as a stock adjustment. No movement should ever be invisible to your system.
Transfers: if you move products between locations or warehouses, record the transfer. This is especially important if multiple people work in the warehouse - without transfer records, products seem to teleport between locations and nobody knows why.
Cycle Count Consistently
Even with perfect recording discipline, small errors creep in. Cycle counting is how you catch them before they snowball.
The idea is simple: instead of shutting down for a full inventory count once a year, you count a small portion of your inventory every day or week. Over a month or quarter, you cover everything.
A practical approach for small warehouses:
A-class items (top 20% of products by sales volume or value): count weekly. These are the products where a stockout hurts the most, so you want the highest accuracy.
B-class items (next 30%): count monthly. Important but not critical. Monthly counts keep them honest.
C-class items (bottom 50%): count quarterly. These move slowly, so discrepancies are less likely and less impactful.
When a count doesn't match your records, investigate immediately. Was there an unrecorded movement? A receiving error? A pick mistake? Finding the root cause prevents the same error from recurring.
Set Reorder Points and Safety Stock
Reorder points are your early warning system. When stock drops below the reorder point, it's time to place a purchase order so new stock arrives before you run out.
The basic formula:
Reorder point = (average daily demand × supplier lead time) + safety stock
Average daily demand is how many units you sell or use per day, typically calculated over the last 30 to 90 days. Supplier lead time is how many days it takes from placing an order to receiving the goods. Safety stock is your buffer against variability - spikes in demand or delays in supply.
For safety stock, a simple starting point is:
Safety stock = (maximum daily demand − average daily demand) × lead time
If your average daily sales are 10 units but you've seen spikes up to 15 units, and lead time is 7 days, your safety stock would be (15 − 10) × 7 = 35 units.
Set reorder points for at least your A-class items. Review them quarterly because demand patterns and lead times change with seasons, promotions, and supplier reliability.
Use Alerts and Automation
Checking stock levels manually works when you have 20 products. At 200 products, it's a full-time job. At 2,000, it's impossible. This is where automated alerts earn their keep.
Most warehouse management systems can notify you when a product drops below its reorder point. Some can generate draft purchase orders automatically. At minimum, set up a daily report that shows:
- Products currently below their reorder point
- Products approaching their reorder point (within 20%)
- Products with zero stock
- Products with no sales in the last 90 days (potential dead stock)
This report takes five minutes to review each morning and prevents most stockouts before they happen.
Monitor Supplier Lead Times
Your reorder points are only as good as your lead time estimates. If you assume a 5-day lead time but your supplier regularly takes 8 days, you'll run out of stock 3 days before every delivery.
Track actual lead times for every purchase order: when you placed it and when the goods arrived. Over time, you'll see each supplier's average and their variability. Use the realistic number, not the optimistic one, when calculating reorder points.
If a supplier's lead time is highly variable - sometimes 5 days, sometimes 15 - increase your safety stock for their products or consider finding a more reliable alternative.
Watch for Seasonal Patterns
Many products have predictable demand cycles. Summer items sell more in spring and summer. Gift products spike in November and December. Construction supplies follow weather patterns. If you're using a simple average daily demand, you'll under-stock during peak seasons and over-stock during slow periods.
Look at your sales data from the same period last year. If December sales are typically 3x your annual average, your reorder points for that period should reflect the higher demand. Adjust them before the season starts, not during it - by then it may be too late to get additional stock from your suppliers.
Building the Habit
Accurate stock tracking isn't a one-time project. It's a set of daily habits: record every movement, count regularly, review your reorder reports, and investigate discrepancies. None of these tasks is difficult, but all of them need to happen consistently.
Start with your most important products. Get the process right for your top 20 items, then expand. The compound effect of accurate stock data is enormous: fewer stockouts, less dead stock, lower carrying costs, and happier customers who get what they ordered, when they expect it.