Inventory Management
Your Bestselling Product Might Be Disappearing From Your Forecast
A product's sales can decline simply because it was out of stock. Discover how stockouts distort demand forecasts, influence purchase orders, and create recurring inventory shortages.
How one stockout can distort demand planning, reduce future purchase orders, and create a recurring inventory problem.
Your Sales Dropped 60%. But Did Demand Actually Decline?
Imagine reviewing your monthly sales report and seeing that one of your strongest products has suddenly lost 60% of its sales.
Management is concerned. The purchasing team starts reconsidering its next order. The demand forecast is adjusted downward.
On paper, these decisions appear reasonable.
But there's something the sales report doesn't show.
The product was out of stock for 18 days.
During the 12 days it was available, customers continued purchasing at exactly the same daily rate as the previous month.
The product didn't necessarily become less popular.
The business simply had fewer opportunities to sell it.
And if management doesn't recognize that distinction, the next purchasing decision could make the problem worse.
When Sales History Tells the Wrong Story
Consider this hypothetical example using two standardized 30-day reporting periods.
January
Days available for sale: 30
Units sold: 300
Sales per calendar day: 10
Sales per in-stock day: 10
February
Days available for sale: 12
Units sold: 120
Sales per calendar day: 4
Sales per in-stock day: 10
Looking only at sales, the product appears to have declined by 60%.
But its observed selling rate during available days remained unchanged.
The 60% sales decline is real. A 60% decline in customer demand has not been established.
That distinction is critical.
A retailer using the most recent 30 days of sales to calculate replenishment requirements might now assume the product needs only four units per day.
Yet the available evidence suggests that this assumption deserves further investigation.
How One Stockout Can Create the Next
Here's where a temporary inventory shortage can become a recurring operational problem.
The product runs out of stock.
Recorded sales fall because customers cannot purchase it.
The forecasting process interprets lower sales as lower demand.
Purchasing reduces the next order.
When the product becomes available again, the smaller order may not be enough to support its actual selling rate.
Another stockout follows.
The business ends up replenishing less inventory because it previously failed to replenish enough.
This is particularly dangerous when purchasing decisions are heavily automated or based on simple historical sales averages.
The calculation may be working exactly as designed.
But the information feeding it is incomplete.
And because the forecast looks mathematically reasonable, management may not realize that the problem is repeating.
What Could This Mean for Your Next Purchase Order?
Let's return to the example.
Suppose the business has a 45-day replenishment lead time.
Using the reported sales rate of four units per day, expected demand during that period would be:
4 × 45 = 180 units
Using the observed in-stock selling rate of ten units per day:
10 × 45 = 450 units
That's a difference of 270 units.
At a hypothetical landed cost of $15 per unit, the difference represents $4,050 in inventory purchasing value.
That does not mean the business should automatically purchase 270 additional units.
The appropriate order quantity still depends on inventory already available, inbound shipments, demand variability, supplier minimum order quantities, and target stock coverage.
But it demonstrates how one assumption can materially change a purchasing decision.
And when similar errors occur across dozens or hundreds of SKUs, the operational consequences can become significant.
Why We Can't Simply Assume Every Stockout Represents Lost Sales
There's an important limitation.
If a product sold ten units per day while available, we cannot automatically conclude that it would have sold ten units every day it was out of stock.
Customer demand may have changed.
The available selling period may have included a promotion or unusually strong demand.
Some customers may have purchased alternatives, while others may have waited for the product to return.
This is why estimated demand should never be presented as verified sales.
A more reliable analysis considers historical availability, comparable selling periods, demand trends, seasonality, and the timing of individual stockout episodes.
Where the evidence is incomplete, management should work with reasonable demand scenarios rather than treating one estimate as an unquestionable fact.
The objective isn't to inflate the forecast.
It's to avoid underestimating demand simply because inventory was unavailable.
Three Questions Management Should Ask Before Reducing a Purchase Order
1. Did sales decline because customers stopped buying, or because inventory wasn't available?
Review SKU-level availability alongside sales performance. A decline that coincides with a stockout deserves a different interpretation from one that occurs while inventory remains consistently available.
2. Is the forecast using actual sales or an availability-adjusted demand estimate?
Understand which inputs drive purchasing recommendations. If stockout periods are included without adjustment, the forecast may systematically underestimate demand.
3. What happens if the next order is based on the wrong assumption?
Evaluate the replenishment decision against realistic demand scenarios, supplier lead times, existing inventory, and purchasing constraints.
The objective is not to order more inventory by default.
It is to understand whether the proposed order is supported by the business's actual operating conditions.
The Management Problem Behind the Numbers
This issue extends beyond forecasting.
A management dashboard might show declining sales, weakening product performance, and lower replenishment requirements.
All three indicators could appear to support reducing purchases.
But without inventory availability data, management may be drawing conclusions from a product that customers couldn't consistently buy.
A business can mistake its inability to fulfill demand for evidence that demand no longer exists.
That's why sales performance, inventory availability, and replenishment decisions should be evaluated together.
At McKeeleen Advisory, we approach these situations by examining the operational data behind the reported numbers, identifying where assumptions may be misleading, and evaluating the practical implications for purchasing and inventory planning.
Sometimes the analysis supports increasing replenishment.
Sometimes it confirms that demand has genuinely weakened.
And sometimes the data isn't sufficient to justify a confident decision yet.
Recognizing the difference is part of good inventory management.
Before You Trust the Forecast, Check What It Couldn't See
Historical sales are valuable, but they aren't always a complete picture of customer demand.
When products are unavailable, the sales history used to plan future inventory can become distorted.
And if those distortions go unnoticed, a temporary stockout can influence purchasing decisions long after the original shortage has ended.
Before reducing the next purchase order because sales have fallen, ask one question:
Did demand actually decline, or did we simply run out of inventory to sell?
McKeeleen Advisory
Inventory • Demand • Replenishment • Operational Performance
Illustrative example: The figures used in this article are hypothetical. Availability-adjusted demand estimates require appropriate data and validation and should not be treated as confirmed lost sales.