Why Companies Carry Too Much Inventory and Still Stock Out

Many companies struggle with a frustrating contradiction. Warehouses are full, inventory value keeps rising, yet customers still experience stockouts on important products. At first glance, this feels like a failure of execution. If there is plenty of inventory, availability should not be a problem.

In reality, this situation is extremely common, and it usually has little to do with how hard people are working. It is the result of how inventory decisions accumulate over time.

Inventory Problems Are Rarely About Total Quantity

One of the most common mistakes is looking at inventory only in total. Total inventory value, total units on hand, or total days of supply can all look healthy while availability problems continue. That is because inventory does not fail evenly.

Some products receive far more inventory than they need, while others receive just enough to appear sufficient until variability shows up. Excess inventory and stockouts often exist in different parts of the portfolio, which is why the problem feels confusing.

A small number of products typically drive the majority of demand, revenue, or customer impact. These items are exposed to demand variability, lead time changes, and forecast error. At the same time, slower moving products quietly accumulate inventory because they are replenished using the same logic, even though their demand behaves very differently.

How Reasonable Decisions Create Unreasonable Outcomes

Inventory rarely gets out of balance because of one bad decision. It drifts out of balance through many reasonable ones.

Safety stock is increased to protect service.
Order quantities are raised to reduce ordering frequency or capture price breaks.
Lead times are padded to account for supplier uncertainty.
New products are launched with conservative assumptions.

Each of these decisions makes sense in isolation. The problem is that they are rarely revisited. Conditions change, but the assumptions behind inventory policies often do not. Over time, these outdated assumptions compound.

Meanwhile, demand patterns shift. Some products grow faster than expected. Others slow down. Some become intermittent. Inventory policies that once worked quietly stop fitting reality.

Averages Hide the Real Risk

Another contributor is reliance on averages. Average demand and average lead time are comfortable numbers, but stockouts are caused by variability, not averages.

A product with stable average demand but high variability requires a very different inventory approach than one with smooth demand. When variability is underestimated or ignored, inventory appears adequate on paper but fails in practice.

This is why companies can confidently plan inventory levels and still experience frequent shortages. The math works on average, but reality does not behave like an average.

A More Useful Way to Look at Inventory

A simple and effective way to diagnose this issue is to stop looking at inventory as a single pool and start looking at behavior.

Which products turn consistently?
Which ones sit untouched for long periods?
Which items are most often expedited?
Which SKUs drive customer complaints or service failures?

In many cases, companies find that excess inventory is concentrated in slow or low impact items, while stockouts are concentrated in fast moving or high impact ones. Seeing this clearly often changes the conversation.

The goal is not to carry more inventory or less inventory overall. The goal is to align inventory with how products actually behave and how customers actually buy.

Inventory imbalances usually build slowly. Recognizing that excess and shortage can coexist is often the first step toward restoring control.