It excels in accurately forecasting customer demand, eliminating cash flow hurdles like overstock, and automating the entire inventory purchasing process for time-saving benefits. A future-oriented digital operations platform such as Actindo Core1 enables you to automatically calculate minimum stock levels based on data histories from all sales channels. Min and max stock levels are predetermined inventory limits that help businesses maintain optimal stock levels. These predetermined thresholds can be fixed quantities for each item or dynamically adjusted based on sales trends using real-time sales data from a perpetual inventory system. Maintaining optimal inventory levels is easier when your lead times are shorter — or stock in cash flow statement at least reliable. That way, when you order replenishment, you can count on when they’ll arrive.
Optimal inventory levels are critical for fulfilling customer demand while avoiding too much inventory. And while every DTC brand requires a unique inventory management strategy, there are some general tips for maintaining optimal inventory levels. By forecasting your optimal inventory levels, you also improve your inventory optimization, inventory planning and inventory management processes. That’s because you have a better sense of what customers will want to buy in the coming months. So, you only order the inventory that you’ll actually sell through (nothing more, nothing less).
Clear out obsolete inventory
Because it tracks what your inventory levels are doing (every minute of the day) and translates this information into actionable steps. That’s why the best brands invest in an inventory management system (IMS) or ops optimization tool to do this work for them. An IMS typically tracks your inventory levels and could potentially help streamline how you place POs. Cogsy, on the other hand, tracks inventory levels 24/7 and considers how this data will affect your brand’s forecasts in real-time. This way, you always have a wildly more accurate forecast to determine when, what, and how much stock to order. Optimal inventory levels ensure you never have too much or too little inventory at any given time.
Calculate safety stock
A firm avoids overstocking because 13 strategies to speed up collections it will result in high material costs. Overstocking will lead to the requirement of more capital, more space for storing the materials, and more charges of losses from obsolescence. Inventory acts as a bridge between production and sales of business and ensures a regular supply of finished goods to customers.
Admittedly, calculating your exact optimal level of stock is complicated because these factors are constantly changing. AKA the goldilocks zone where your ecommerce brand can reach peak profitability. For example, a supplier may require orders for a certain product to be no less than 50 units, which is the minimum quantity. This number is important because it helps you avoid running out of a product, which could lead to lost sales and unhappy customers. However, for successful JIT implementation, accurate forecasting is crucial.
It also tracks your demand as it changes, so you avoid ordering low-performing SKUs. To clear your obsolete inventory, offer the products at a majorly discounted rate. You can also create product bundles that kit dead stock items with more popular SKUs. And, if all else fails, you can always donate the obsolete inventory or write it off as a loss. Safety stock is the extra inventory you keep on hand to protect against demand and supply chain uncertainty. But with ongoing supply-chain disruptions, many DTC brands are seeing longer than usual lead times closer to the 6-month mark.
Calculate weeks of supply
Maintain a minimum stock level if materials serve multiple centers and come from diverse suppliers. Conversely, if a material is unique or considered a special item and is acquired exclusively from a single supplier, you may not need a fixed minimum stock level. Led by Mohammad Ali (15+ years in inventory management software), the Cash Flow Inventory Content Team empowers SMBs with clear financial strategies.
This figure will tell you how much stock you should always have to meet customer demand. Knowing the normal, minimum, and maximum sales for product stocks will give you a strong foundation for fixing the minimum stock level. The minimum level shows the lowest figure of inventory balance, which must be maintained in hand at all times so that there is no stoppage of production due to non-availability inventory. This level is possible to maintain a fixed level after taking into consideration the rate of consumption and the time required to acquire sufficient material to avoid dislocation of production. Obsolete inventory takes up space in warehouses and racks up holding costs over time. But if you proactively get rid of these dead stock items, you can get ahead of the problem and get closer to optimal levels.
- But because there’s a discrepancy in your data, your inventory management software shows you only have 30 units on hand.
- Its integration with supplier databases enhances communication, ensuring swift replenishment and centralized control over multiple inventory locations.
- You can employ various strategies, including planning beyond minimum stock figures, conducting regular inventory audits, and reducing average lead time.
For example, if a bookstore sells around 50 copies of a particular novel every month, that’s the normal consumption. Discount, bundle, or donate items that have become obsolete to prevent them from occupying valuable warehouse space and accruing holding costs. The following factors should be considered while fixing the maximum level of various stocks. Multichannel Inventory Control allows business owners to distribute products through a variety of storefronts. Understanding these terms is crucial for effective inventory control and management.
Luckily, you can avoid this unfortunate situation by monitoring your minimum stock levels based on accurate demand forecasting. In this article, we’ll delve into the role minimum stock plays in inventory planning and management and how you can optimize your business’s inventory levels. Aligning reorder points with anticipated demand becomes seamless, mitigating the risks of stockouts and overstock situations. The software further streamlines the reorder process by automatically generating alerts and purchase orders upon reaching minimum stock levels. Its integration with supplier databases enhances communication, ensuring swift replenishment and centralized control over multiple inventory locations.
For example, if you sell dog toys and your manufacturer normally needs 3 days for delivery, use a factor of 3 in the calculation. In this guide, we’ll explain what a minimum stock level is, how to calculate it with a formula and more. Plus, it automates a lot of the mundane replenishment tasks, saving time and eliminating human errors. This includes replenishing alerts and optimized POs to keep inventory at the optimal level.
If stocks are less than the minimum level, then the work will stop due to a shortage of materials. Since we know the above mentioned formula for calculating the minimum stock level, let’s start by calculating the reorder level first. In other words, a minimum stock level is a minimum quantity of a particular item of material that must be kept at all times. Let’s say one SKU’s optimal quantity is 200 units, and you have 25 units available right now. But because there’s a discrepancy in your data, your inventory management software shows you only have 30 units on hand.
So, for instance, you know to order 500 units of SKU A by this date and time. This helps brands proactively maintain optimal inventory levels by replacing manually-updated spreadsheets with predictive sales and inventory intelligence. Alternatively, an ops optimization tool like Cogsy will automatically calculate safety stock into your optimal stock levels and have your POs reflect that information. Meanwhile, holding too much inventory requires a hefty up-front capital investment. And the longer units sit in your warehouse, the more carrying costs they rack up, and the more likely they’ll turn to dead stock. So, by the time you sell these units, chances are good that their margins will have shrunk, and you’re no longer making a profit.