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How do stock-outs distort demand forecasting and what can I do?
When an item is out of stock, recorded sales fall to zero or low levels even though customers wanted it, so a model learns demand is lower than it really was. Flag stock-out periods using inventory records and either exclude them, or estimate the lost demand from comparable in-stock periods.
This creates a vicious circle: the forecast is too low, you order too little, and you run out again.
Approaches:
- Record daily stock levels so you know when items were unavailable.
- Replace affected periods with estimates from before and after, or from similar items.
- Use sales rate when in stock rather than raw totals.
- Track lost-sales proxies such as web searches or waiting lists.
Without stock data, look for unusual runs of zeros in otherwise steady sellers.
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