It’s time to talk about the elephant in the room: inventory management and stockout issues. In 2023, OOS subscription products impacted 67% of businesses* in some capacity. It’s a problem that many businesses of all sizes and industries struggle with, and can lead to short and long term repercussions for your business. So what can we do about it?

So let’s get started! 🚀

Key Takeaways

• Stockouts are a prevalent issue in subscription-based businesses. 67% of businesses were impacted by stockouts in 2023.*
• Identify root causes of stockouts; both internal and external. External factors include disruptions to supply chain management (SCM) and seasonal fluctuations. Internal factors include inventory management and product offerings.
• Passive demand forecasting relies on historical data. Active demand forecasting involves analyzing market trends and external factors.
• Proactive measures and communication are key to handling stockouts. Avoid catalog bloat to manage SKUs effectively; maintain solid safety stock for emergencies; and utilize subscriptions for built-in forecasting and prioritization.
• Communicate transparently with subscribers about stockouts; offer options such as product swaps, delayed orders, or discontinuation with alternative products; and educate subscribers proactively about your out of stock flow.

Determine the root cause of your stock deficit to pick the right approach

Understanding why your inventory has run out is the crucial first step to picking the right strategy to handle relevant problems that arise. There are a number of potential causes of stockouts, including disruptions to supply chain management (SCM), inventory management, and inadequate customer data. However, we can organize most of these into 2 general themes: those within your business and control, and those largely external to them.

These include disruptions to SCM like product shortages and fulfillment queues; as well as supplier, manufacturer, and distributor issues. This also partially includes fluctuations to seasonality and abnormal demand and/or lead time variability. (We say “partially” because there are things you can do to prepare for these, which we’ll talk about!) 

While these factors may not be directly controllable by your business, you can proactively forecast and prepare to handle them if and when they impact your business.

Internal factors include everything from inventory management and forecasting to your product offerings. These offer a little more opportunity for proactive prevention of inventory concerns, and how to efficiently manage your subscription program product fulfillment. 

Your brand can mitigate the negative impacts of these factors by structuring your business to handle fluctuations efficiently and avoid stockouts when possible. So let’s break that down.

Forecast for demand fluctuations and patterns inside and outside of your business

Your business’s history can give you invaluable insights for future action. This process is known as passive demand forecasting. Look out for and highlight impactful takeaways from patterns in purchasing. 

While your business patterns are crucial for accurate forecasting, other impactful factors external to your specific brand should also be considered. These include market research, government notifications/regulations, economic trends, and global/political conditions. This more in-depth analysis of internal and external elements of your business is active demand forecasting.

With these useful insights from demand forecasting, your business can anticipate inventory needs proactively and scale your ordering appropriately. These are well-known and important components of every successful eCommerce business model. So let’s discuss structuring your business for optimal demand forecasting and management.

Structure your business for optimal demand forecasting and management

Avoid catalog bloat and keep your SKU count manageable

The balancing act of proper inventory management is a hard one to strike. Too little inventory leads to stockouts and deficits, and over-ordering can be detrimental to your profit margins and lead to an overstock of product - something disastrous especially for brands who offer expirable products. This balance is made harder when your product catalog is overfull; necessitating management of an unruly number of SKUs, and guaranteeing that some SKUs will be mismanaged from an inventory perspective.

Properly monitoring and managing your product catalog is the key to scaling sustainably, even though expanding your product lines is an integral part of business growth. Conduct regular product audits and proactively assess opportunities to grow, but understand that cuts may be necessary to sustain a manageable catalog. 

Solid safety stock can prevent panic in a pinch

Safety stock, or inventory you keep in reserve strictly for situations like stockouts, is a useful but shorter term answer when in a pinch. We recommend cycling out safety stock regularly for brands with consumable or perishable products to avoid expiry problems. You can find Shopify’s full guide to safety stock here - it’s pretty comprehensive, so we’ll keep this short and sweet!

Subscriptions, though lesser discussed, serve as highly impactful forecasting tools beyond conventional catalog and inventory management practices. They allow businesses to better forecast their product demand by providing real, more dependable upcoming order dates - and they offer a strong business case for further upcoming purchasing needs. While they’re a form of passive forecasting internal to your regular business functions, they offer more clarity and reliability than normal order pattern tracking. Let’s walk through leveraging your subscription analytics to better inform your inventory processes.

Use subscription order analytics for built-in forecasting & prioritization 

Leverage your subscription order analytics to forecast impending stock needs. Using currently active subscriptions, look at upcoming order dates within a timeframe and factor those into your inventory modeling. Then, prioritize inventory based on attached revenue, number of orders, and other business needs.

📝 Try it now!

Ordergroove offers native OOS reporting (in development) and order forecasting functionalities. Understand what out of stock products are attached to currently processing subscription orders, what your runway is for orders still in our 30 day out of stock flow, and how much revenue is impacted by inventory deficits.

Prioritize subscription order fulfillment for better demand predictability

Subscriptions offer significant forecasting benefits, making them the easiest anticipatory business model for inventory management needs. But how can you convince your customers that subscribing is the best thing for them, too? The answer is simple. 

When you prioritize subscription inventory fulfillment, you incentivize customers to convert to subscriptions by more solidly promising order fulfillment - which feeds back into the ideal modeling of demand forecasting that subscriptions offers. It’s a core value proposition that brands should use to tempt customers into subscribing. Make this benefit, as any with subscriptions, obvious on your brand's subscription landing page like the example below (more on that here).

In fact, 13% of surveyed eCommerce subscribers signed up for “access” - identifying exclusivity as a core value proposition that drives real impact to your subscription enrollment. So communicate with your customers: subscribers get priority access to inventory. Similarly to a “call ahead” reservation model, consumers who give brands a heads up get their “thank you” in the form of a seat at the table. (or, in this case, their order fulfillment.)

We cannot emphasize this enough: subscriptions are a win-win solution for your business and customer base.

Prepaid subscriptions make inventory forecasting easier

Prepaid subscriptions are a newer but extremely impactful subscription model. Customers elect to pay up front for a subscription term of their choosing, and will usually receive an additional discount in exchange. While offering an additional discount may initially seem counterintuitive to your profits, the locked-in retention that prepaid subscriptions offer can drive an up to 3x lift in your overall Customer Lifetime Value (CLTV). Most brands offer 3, 6, or 9 order terms, but the right term for you will depend on your business economics and products. Here’s more on how to supercharge your CLTV with Prepaid subscriptions.

Some may initially believe prepaid subscriptions appear daunting from a fulfillment perspective. This notion is due to the underlying misunderstanding of the true cause of fulfillment issues. For those struggling with inventory forecasting and other internal SCM disruptions, prepaid subscription inventory is actually much easier to manage than other on-demand models because of locked-in upcoming orders that accurately pinpoint fulfillment needs. 

So if your business struggles to forecast accurately for a particular product offering, we highly recommend offering prepaid subscriptions for this product to better predict upcoming demand. 

For products you know frequently suffer from supply deficits and other external SCM disruptions out of your control, however, they may not be the best fit for prepaid subscriptions. Work with your Ordergroove CSM to curate the best product offerings for your program to boost your CLTV.

How to handle stockouts with subscribers

We’ve spent some time (and lots of research) on how to prevent stockouts with proper management, business modeling, and analysis. But what do you do when the inevitable supply chain disruption happens, and you’re faced with subscription orders you can’t fulfill?

In these situations, we recommend the 2 key components of communication and flexibility to set up the smoothest stockout experience possible for your subscribers. So let’s break that down.

Communicate transparently with your customers, and let them know what to expect

When faced with a stockout, we recommend as much transparency as possible in your customer communications. Your subscribers should be some of your most high priority customers, so help them feel valued and respected by giving them some insight into the behind-the-scenes. Ordergroove lets you update your inventory levels in real-time (more on that here) so your team is prepared to handle appropriate communications as soon as possible.

For stockout notifications, tell them why their product is out of stock, convey your dedication to resolving this situation quickly, and try to give them a good idea of what they can expect for the near future. 

We also recommend including subscription OOS FAQs on your subscription program landing page (more on how to create a seriously impressive landing page here) so subscribers know what to expect - your support team will also thank you for this! Both proactive and reactive communication into the “why” can prevent miscommunication and negative customer sentiment.

If a shortage stems from a larger or longer-standing issue such as a general disruption to your supply chain (impacting multiple products), you can communicate it to your subscribers through their default out-of-stock notification emails, like the day 1 OOS email example below (here's how our default OOS emails work).

For more one-off or circumstantial shortages, we recommend sending targeted emails to your impacted segment of subscribers (which you can find through our native Analytics, currently in deveoopment) explaining why their order is delayed, if they can expect the rest of their order (we'll break those orders out for you and send in-stock items on time), and when they can expect the impacted item(s) back in stock. 

Give your subscribers options - or proactively meet their needs for them

Customers appreciate having options, and feeling in control of their own subscriptions. To alleviate frustration and offer an amenable path forward, we recommend one of the following options.

Give them the option to swap products

For shorter term stockouts (like for those you know will be back in stock within a week or two), you should offer subscribers the option to just switch out the OOS product in their next order. Ordergroove lets you configure one-time SKU swap (more on that here) to give subscribers flexibility during an interim period of inventory deficit.

For subscribers that’ll be impacted longer term, we recommend giving them some long-term alternative product options after notifying them via your default OOS emails. You can send these subscribers a targeted email explaining why their item is out of stock, how long they can expect this shortage, and offering some alternatives they can SKU swap to (here’s more on how SKU swap can boost your retention rates). This differs slightly from the previous option of one-time SKU swap - regular SKU swap will set this new product for all upcoming orders until another change is made by your team or the subscriber.

To do this at scale, we recommend having “backup SKUs” for your products in case of shortages. The nature of their similarity will differ based on your business and products, but we generally recommend keeping them at a similar if not the same price-point to each other. If this is not possible, we recommend offering customers discount codes or other one-time subscription discounts to avoid charging subscribers more to no fault of their own.

This option will inform subscribers of their choices without canceling their current subscription or taking any action on their behalf.

Discontinue the product and offer or enact alternatives

If you anticipate a product will be out of stock for an extended period or cannot anticipate a return date, you may choose to end the subscription to that particular product. You can discontinue that product in Ordergroove and notify subscribers via email of this long-standing inventory issue. You can also elect to bulk SKU swap all subscribers with an active subscription tied to this discontinued SKU to an alternative SKU as part of the discontinuation process, if you’d prefer to keep those subscriptions active (more on that here). 

Canceling is never the ideal outcome - so in this situation, we recommend discontinuing that product and bulk SKU swapping your customers to a backup SKU. Make sure you pair this with appropriate communication to your subscribers - take a look at our email breakdown and real example from PetSmart below.

PetSmart Discontinued with SKU Swap Example Email:

Let subscribers delay orders for short-term stockouts 

If this is a shorter term outage and you anticipate the product being available soon, subscribers also have the option to delay their order until their item is back in stock. They can do this at any point from their subscription manager, like in our example from Peet's Coffee below.

You can notify them via a one-off email of this option, and even incorporate the option to 1-click delay their order like in the example below if you are leveraging our Klaviyo or Attentive integrations. 

📝 Try it now!

• Here's how to turn on real time stock updates so you can promptly communicate stockouts with subscribers. 
• Use Order Level Reports to view upcoming orders tied to specific products you expect to run out of stock and proactively communicate with subscribers their choices. 
• Work with your Ordergroove CSM to determine which products to offer on Prepaid subscriptions. As a reminder, products that you anticipate experiencing internal inventory management difficulties are a great contender for Prepaid subscriptions, as they let you very accurately predict demand. 
• Here's more on how our default OOS flow works. This flow includes default communications on days 1, 15, and 30 of a product's OOS tenure; but we recommend sending out situation-specific communication based on short or long term expected stockout timelines.
• Leverage 1-click delay (available via Klaviyo or Attentive), discontinue a product with bulk SKU swap, or communicate alternative options to subscribers.

🤓 Useful resources and further reading

While we tried to make this guide as comprehensive as possible, we primarily focused on stockouts for subscriptions (because that’s what we do best!). Further content around general eCommerce stockouts is beneficial to optimize your entire business to avoid inventory issues, however. So here are a few insightful reads we found through our research process.

• Here’s Katana’s full guide to inventory management, control, analysis, and systematic handling.
• Here’s Shopify’s in-depth guide to stockouts and how to prevent them in general eCommerce. 
• Here’s more on safety stock, and how it can benefit your business’s inventory management if done right.
• Here’s more on what supply chain management really means, and 3 crucial elements to succeed with SCM.
• Here’s an in-depth dive into seasonal demand forecasting, and how it can maximize your business efficiency.

*Closed analysis of Ordergroove customers, FY 2023.