Leveraging the New Era of Data: Automated Out of Stock Reason Codes for Smarter Inventory Management

Blog Post on OOS (Out of stock) Automated Root Cause Analysis

How Automating Root Cause Analysis of Out of Stock SKUs Can Drive Serious Value in Your Supply Chain

If you’re in supply chain management, you’ve probably heard a lot about data analytics, dashboards, metrics, and KPIs. These are all essential tools, but today, I want to dig a little deeper and talk about something that can truly transform the way you work: automated root cause analysis. It’s one of those game-changing strategies that, once you get it in place, will save you countless hours and help your team make smarter decisions, faster.

Common Supply Chain Problems That Need Root Cause Analysis

Let’s be honest: supply chain operations come with their fair share of headaches. Maybe your team has been grappling with issues like these:

• Why is that SKU always out of stock at the final warehouse?

• Why do we keep seeing certain SKUs expire before we can move them?

• Why does our demand forecasting always seem to fall short, leaving us understocked?

• Why are suppliers consistently late with deliveries?

We’ve all been there. These issues aren’t just annoying—they also can takes weeks to solve especially if the data isn’t readily available. But what if I told you there was a way to get the answers to these questions in seconds instead of days or weeks?

Why Automating Root Cause Analysis is a Game Changer

According to a Forrester Research (2020) report, supply chain automation can improve on-time order fulfillment rates by 20-25%. When companies can identify and resolve out-of-stock issues before they impact orders, they can fulfill customer demand more reliably.

A PwC survey (2021) found that companies with automated supply chain processes (including stockout detection and root cause analysis) could reduce their operational costs by 10-15%. This is achieved by minimizing the costly inefficiencies tied to stockouts, expedited shipments, and excess inventory.

Here’s where it gets exciting. Imagine if you could automate the process of figuring out why things are going wrong in your supply chain. Rather than relying on some off-the-shelf solution that you don’t fully control—something that might be a “black box” for your team—you could build your own solution and own the logic behind it. This is where tools like SQL, data warehouses, and a forward-thinking team come into play.

For example, automating root cause analysis of out of stock SKUs means setting up reason codes in SQL queries tied to production tables that are updated every day. These tables would then feed into real-time Tableau dashboards that give your team instant visibility into the problem.

Even if your root cause logic isn’t perfect at first (and let’s face it, it rarely is), just having real-time data at your fingertips can save days of research. And the best part? This approach works for any industry, any company, and any supply chain.

A Real-Life Example: SKU Out of Stock

Let’s talk through a real-world scenario: an item is out of stock. In a traditional setup, someone would need to dig through emails, check inventory levels, reach out to suppliers, and try to figure out what went wrong. But what if, instead of hunting down the answer, you had it right in front of you on a dashboard?

With automated root cause analysis, you could quickly identify the reason behind the stockout. It might be due to one (or more) of these reasons:

• Vendor is out of stock

• Buyer forgot to place the order

• Delivery was delayed

• Supplier never sent an acknowledgment email

• Demand was under-forecasted

Now, instead of wasting time guessing, your team can immediately focus on the root cause. During S&OP (Sales and Operations Planning) meetings, you’re no longer scrambling to figure out what happened. Instead, you’re able to say, “This is why it happened, and here’s how we’re going to fix it.” The conversation shifts from confusion and blame to clear, actionable steps.

How Automation Creates a Competitive Edge

Let’s take a hypothetical but relatable example. Picture two companies in the same industry—say, the plumbing sector.

• Company A is still using emails and faxes for purchase orders and inventory updates.

• Company B has automated root cause analysis set up using SQL queries and Tableau dashboards. When something goes wrong, they can instantly identify the issue, whether it’s a supply chain delay, poor demand forecasting, or vendor issues.

Now, both companies face similar supply chain challenges—out-of-stock items, poor forecasts, delayed shipments. But because Company B can quickly pinpoint issues with automated root cause analysis, they can make faster adjustments. As an example company B can quickly improve their demand forecasts, changer vendors, or set up strategic vendor meetings with poor performing vendors.

They’re on top of problems before they snowball, which means they finish plumbing projects in 2 days instead of 5 days, like Company A.

That’s a huge competitive advantage. And suddenly, Company B is not only more efficient—it’s outpacing Company A in terms of customer satisfaction and profitability.

What Does it Take to Get There?

Here’s the reality: Setting up automated root cause analysis isn’t a plug-and-play solution. You’ll need a few things to make it work:

1. Data engineering expertise to build and maintain the production tables.

2. A team with SQL knowledge who understands both the data and the intricacies of supply chain processes.

3. Time and bandwidth for your team to develop, test, and refine the system.

It’s a bit of an investment up front, but once it’s in place, the time saved and the insights gained will be absolutely worth it. You can even start with simpler solutions, like using VBA or manually creating tables, to get the ball rolling if resources are tight.

Overall, this process could take 3-4 months with five hours spent per week on, but in time saved and optimizing your strategic insight is worth it. 

The Bottom Line

Automating root cause analysis in your supply chain might sound like a big project, but overall—it’s one that can pay huge dividends. By putting real-time data into the hands of your team, you’re not only making your processes more efficient but also enabling faster, smarter decision-making. 

So, if you haven’t already, it might be time to start thinking about how you can use automation to tackle root cause analysis. It could just be the edge your supply chain needs.

Stay Tuned for Part (2 of 2) where I discuss the tables and the SQL query.