"Stockout Costs and Consequences"

I recently read an article in the APICS magazine entitled "Stockout Costs and Consequences, Irritated customers or idle inventory?" In the article John Van Vliet, P.H.D., Associate Professor at Shorter College in the School of Business Management, was interviewed. He is currently doing research to assign cost to potential stockouts as well as establishing the pros and cons associated with inventory holding costs opposed to the risk of a stockout. He says, "A stockout will generate a chain of costly events, and it's hard to assign costs to that chain and hard to know when to stop moving along the chain." A stockout can absolutely change customer demand resulting in the cost of lost sales as well as cost values resulting from halting production. Stockout costs can actually be much more tremendous than we actually give it credit. Dr. Vliet makes a valid point in the article when he says, "And when you think about all the time, money, and effort we spend trying to attract customers, isn't it silly to say we're going to fine-tune our inventory controls and accept a higher degree of risk of disappointing our customers in order to save a few hundred dollars here and there?" Instead of using the ABC analysis for usage rates, Dr. Vliet wants to know "Which items are the real showstoppers?" He wants to know which items have the potential to hurt the worst if a stockout occurred. Dr. Vliet says that based upon what you promise your customer and how your customer views an item, even typical C items can turn out to be very critical. For important items reorder points should be adjusted higher to ensure that a stockout will be avoided. Dr. Vliet feels that by properly quantifying stockout costs and implementing an EOQ that incorporates stockout costs, purchasers would be able to do a better job of ordering the optimal quantities to help keep the right balance between keeping on hand inventory and the risk of a stockout.