The usual answer to stockouts is more safety stock. It works, and it’s expensive: cash sits on shelves, products age, and the overstock it creates becomes the markdown problem in the next chapter. The cheaper answer is to know more about what your customers will need.

What Dell did

In a 1998 interview with Joan Magretta in Harvard Business Review, Michael Dell described suppliers who saw the company’s needs day by day, so that information about real demand could stand in for stock on the shelf Reported. The payoff was speed. Stanford’s 2000 case on the company quotes his arithmetic: with 11 days of inventory against a competitor’s 80, a new Intel chip would reach Dell’s customers 69 days sooner Published.

The part most people skip is where the information came from. Dell’s customers told it. In the same interview he described forecasting as a sales skill: account managers walked each customer through their future PC needs, department by department, and asked which needs were certain and which were contingent Reported. He counted inventory velocity among the handful of measures the company watched most closely.

Dell built to order, and most DTC brands can’t. But the split between certain and contingent demand transfers directly.

Certain, contingent and unknown

Sort next quarter’s demand for each top product into three layers:

• Certain, or close to it: scheduled subscription orders, less your usual churn per cycle, and paid preorders. You know the date and the quantity.
• Contingent: one-time buyers who are due to reorder, from the timing work in The Second Order, multiplied by the share who usually do. Add back-in-stock and waitlist signups at the rate they usually convert.
• Unknown: new customers, which depend on your ad spend, the season and luck.

Only the last layer needs a large safety buffer. The contingent layer needs a modest one, and the certain layer barely any.

Say a brand sells a refill with 4,000 active subscribers on a 60-day cycle, losing 8% per cycle. That’s about 3,680 units scheduled for the next 60 days. Another 2,500 one-time buyers are due to reorder, and 35% usually do: 875 units. New customers usually take about 1,200. Forecast the total from last period’s sales with a blanket 40% buffer and you’d order about 8,060 units. Buffer each layer by its own uncertainty, 40% on new customers and 20% on the contingent layer, and you need about 6,410 units, a fifth less inventory. And the customers who’ll be most hurt by a stockout are now the ones best covered.

Your subscribers and regular reorderers have already told you most of next quarter’s demand. Buy for them first.

Ask for more information

Dell asked customers which needs were certain. A DTC brand can do a modest version:

• Before a known stockout, email the people due to reorder and offer to ship their next order now. It moves contingent demand into the certain layer, and it’s the kindest possible stockout notice.
• Preorders for launches and restocks, charged or not, with an honest ship date that meets the FTC rule in chapter 4. What charged preorders do for cash is in Cash Before Growth.

Do this

• Split next quarter’s forecast for your top three reorder products into certain, contingent and unknown. Send it to whoever places purchase orders, with the layers labelled. If they’ve never seen the subscription schedule, that alone changes the next order.