What is Inventory Forecasting
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The document discusses inventory forecasting for small businesses, emphasizing the importance of knowing inventory turnover and using the reorder point formula to manage stock effectively. By calculating lead time demand and safety stock, businesses can determine when to reorder inventory to avoid stockouts. It recommends utilizing a cloud-based inventory management system for better oversight and efficiency.
What is Inventory Forecasting
- 1. INVENTORY FORECASTING For small business (Wholesalers, Distributors, eCommerce Sellers)
- 2. You must surely know the story of Goldilocks and the Three Bears?
- 3. Wait
- 4. What has this got to do with inventory forecasting?
- 5. The Goldilocks Principle of having something that is not too hot and not too cold has been used for everything from the search for habitable Earth-like planets to inventory management, and of course, the perfect porridge temperature
- 6. 1 2 Check that your inventory turnover is within industry benchmarks Use the popular Reorder Point formula to get a reliable reorder point for your goods
- 8. Are You Selling Goods As Fast As They Are Stocked?
- 9. What exactly is INVENTORY TURNOVER?
- 10. Simply put, inventory turnover is how fast you sell your inventory and the need to replenish it
- 11. Sales ÷ Inventory Measured over a period of one year
- 13. A high number means that you’re not stocking enough quantity of an item
- 14. To fix this, you need to raise your inventory levels and lower your turnover so that you don’t miss out on any sales
- 15. How Do I Determine My Optimal Reorder Point?
- 16. A reorder point is the level of inventory that triggers an action to replenish stock
- 17. Reorder Point = Lead Time Demand + Safety Stock A popular reorder point formula is as follows
- 18. What Is Lead Time Demand?
- 19. Lead Time Demand = Lead Time x Average Daily Sales Expressed as a formula
- 20. Lead time is the time it takes from the issue of a purchase order to your supplier to the time it arrives in your warehouse
- 21. What Is Safety Stock?
- 22. Safety stock is not the stuff that you purchase in the event of a cataclastic disaster
- 23. Safety Stock = 1.65 x Square Root of Lead Time Demand Use this simple one that should suit most small and medium-sized businesses
- 24. Let’s Summarise All This
- 25. Hence lead time demand = 8 x 30 = 240 teddy bears Hence, your reorder point would be 240 + 10 = 250 Lead time. It takes 30 days to receive a new batch of limited edition teddy bears from the factory Average daily sales. You sell an average of 8 teddy bears a day at your store. Safety stock. They come in a compact, stackable box. So you like to keep 10 teddy bears as a buffer in your secret storeroom 1 2 3 45
- 26. Finally, use an intelligent, cloud-based inventory management system liked EMERGE App Average daily sales Lead time for purchases Inventory levels for your products