Availability is a financial number, not a shelf number

The second consequence of an empty shelf

Someone walks into their usual pharmacy for a specific medicine. It is not there. They walk to the pharmacy down the street and find it. On the face of it, one sale has been lost.

But an empty shelf has a second consequence, and it is the expensive one: it changes what the customer does next time. A few weeks later the same thing happens — out again here, in stock again there. After two or three disappointing visits the route changes. From then on the customer goes first to the place where the odds are better.

One stockout costs a sale. A pattern of stockouts costs the customer.

That is why availability is not really a warehouse metric. It is the mechanism by which a chain quietly wins or loses its habitual buyers — the ones who never complain and never come back.

Five points the market can actually feel

In a management report, 93% and 98% look almost the same. Five percentage points. To a customer, that gap can mean a noticeably higher chance of walking out empty-handed.

In our founder’s practice, a durable advantage of roughly five percentage points in availability has repeatedly coincided with a difference in sales of around 20%. Three owners of large pharmacy chains reported the same relationship independently, from their own observation.

That is an observation, not a formula. The real effect depends on the starting level, on the competition around each location, and on how customers behave in that market. But it repeated often enough to be treated as strategically significant rather than as noise.

One correction matters when you compare: exclude market-wide shortage. If a product is unavailable to every player and the chain objectively cannot get it, that is not the chain’s failure and it should not sit in the chain’s number.

What exactly are we calling availability?

You could simply count how many product lines are physically on the shelf. But a missing fast mover and a missing item that sells once a year cannot carry the same weight.

So the measure is built on the economic risk of a missed sale. For every product, in every location, on every day, we look at the stock. In a pharmacy the risk starts at zero stock. In a warehouse it starts earlier — while stock is still above zero but has fallen to a small fraction of its target level.

The target level is not a static norm. It is a level the system raises or lowers according to how demand and stock actually behave. From there we take the current average rate of sale — typically over a recent period of about a month — estimate what would probably have sold on the day the product was missing, and convert that into estimated lost margin.

Read this way, the number answers two questions at once: what share of the potential margin did we actually capture, and how much economic risk is sitting in unmet demand right now.

Where the data allows, the estimate should account for substitution inside a category — a missing SKU does not always mean the whole sale is lost. Promotions, trend changes and long out-of-stock periods affect the calculation too.

Availability is a financial indicator that also happens to be a good proxy for service.

What was your availability 90 days ago?

Your ERP or POS will tell you today’s stock. Sales, purchases and transfers too. For historical availability, that is not enough.

You need the state of every product in every location on every day — SKU × location × day. Operational systems are built around events: a sale, a receipt, a transfer, a document. That is not a defect; they are solving a different problem. Historical availability needs an analytical layer of its own.

One number is not enough

A single figure for the whole chain is useful, but it does not manage anything. The metric becomes powerful the moment it can be broken down by the parts of the business that are actually accountable.

1. The manufacturer or supplier

Suppliers are usually measured one way: we ordered 100 units, how many arrived? That is order fulfilment. There is a second question that matters more to the business: what was the actual availability of this manufacturer’s line inside our network? Today, a month ago, six months ago — and how does it compare with a supplier carrying similar products?

If one manufacturer carries a materially higher risk of lost sales than a comparable one, the negotiation changes character. Instead of “we have problems with your supply”, you can put the history on the table: here is the availability of your product line, here is its trend, here is a comparable supplier, why is there a gap and what can we change together?

A poor number does not automatically prove the supplier is at fault. The cause may sit inside the chain: late payment, a wrong product card, a mistaken purchasing policy, your own logistics, an assortment decision, wrong parameters. The metric does not replace diagnosis. It tells you where to begin one.

2. The category manager

Five managers, five product lines. One portfolio runs at 97%, another at 92%. The question is not who is bad. The question is why there are five points of difference. Once a manager knows their portfolio is visible not only today but in history, behaviour changes: a problem can no longer be explained away as one unlucky week.

3. The pharmacy

The same thing happens inside the network. One pharmacy holds high availability, another falls behind systematically. The metric turns into a question: what is this location doing differently? Local overrides on the order? Wrong parameters? A genuine difference in demand? A process that is not being followed? You stop investigating the whole chain and open one door.

4. Time

The weakest possible use of the metric is to look only at today’s figure. A director needs the movement: now, 30 days ago, 90 days ago, six months ago. After any management decision there should be one simple question — did it get better or worse?

The trap

The most direct way to destroy the value of this metric is to pay a bonus on availability alone. The easiest way to raise it is to fill the pharmacies with extra stock. Service improves. Capital freezes, expiry risk grows, and the economics can get worse while the KPI looks excellent.

High availability cannot be judged on its own. It needs a second number next to it.

That second number is the speed at which stock turns back into cash — and it is the subject of the next article.

Questions worth asking this week

• Can we state our availability for last month — and for the same month last year?
• Do we hold daily stock state per product per location, or only transactions?
• What is our estimated lost margin, and who owns it?
• Which manufacturers have systematically worse availability inside our network than comparable ones?
• Which pharmacies deviate, and is it demand or behaviour?
• Is anyone paid for availability without being accountable for the stock it costs?

Related: How to prevent stockouts · What high availability costs · Glossary of inventory-flow terms

The thinking in this article draws on The Evolution of the Pharmaceutical Market, a book by our founder Serzas Gutsaga.