Understocked

Understocked describes a condition in which a business holds less inventory than is needed to meet expected demand or service-level targets. It can affect retailers, manufacturers, and distributors, resulting in limited product availability and potential stockouts at the point of sale or during production.

Causes include inaccurate demand forecasting, unanticipated demand spikes, long supplier lead times, disruptions in the supply chain, seasonal variation, misaligned reorder points, and a reliance on a narrow supplier base.

Consequences include missed sales, backorders, substitution or dissatisfaction among customers, higher expedited shipping costs, production stoppages for manufacturers, and added administrative overhead as teams try to resolve shortages.

Indicators and metrics used to monitor understocked conditions include stockout rate, service level, fill rate, days of supply, and inventory turnover. Tools such as safety stock calculations, reorder point planning, and demand forecasting models help prevent understocking.

Mitigation strategies emphasize improving forecast accuracy, optimizing safety stock and reorder points, diversifying suppliers, shorter but more flexible lead times, better inventory visibility, and, where appropriate, vendor-managed inventory or cross-docking to maintain availability without excess stock.