I hope that you have enjoyed the article “Calculating The Cost of a Stockout.”
The article goes into the empirical costs that are associated with stockouts. But are there other losses that a company can incur that do not make it into the calculation?
You bet there are!
Since the incident cited in the article where I had to go to another retailer for a different brand of tires, I realized something. I actually like the new brand of tires – BF Goodrich – better! My car seems to handle better and gone is the tire squealing when I go around bends a little fast (something I tend to do sometimes [: ).
So, I just may be a BF Goodrich customer for life provided that my new tires continue to perform well over time. In marketing and sales, they often talk about the “lifetime value of a customer.”
When those of us on the supply chain side start thinking about the cost of a stockout, we may want to start thinking about the likelihood of customer loss and the lifetime value of those customers. For an interesting primer on customer lifetime value, check out this tool from the Harvard Business School.
I know that, at least in one case, a stockout led to lost value beyond the short-term costs.
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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