A stockout occurs when customer orders for a product exceed the amount of inventory kept on hand. This situation arises when demand is higher than expected and the amount of normal inventory and safety stock is too low to fill all orders. A stockout can also arise due to delays in the supply chain, as well as stoppages in a company's production process. A stockout causes an increased risk of lost sales, since customers are more likely to look elsewhere for the necessary items. This can have a negative impact on long-term customer relations.

A stockout condition may be intentional. For example, a seller may not have access to sufficient capital to invest in inventory, so it maintains a low inventory level and accepts the consequences of frequent stockouts. Or, a firm knows that there are occasional spikes in demand, but it does not want to to maintain a large inventory investment to meet these occasional demand spikes.

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Inventory Management