Today’s article is for e-commerce businesses that do not sell in physical stores and also for those that sell in this hybrid operation. How to keep your inventory always stocked?
Starting with the basics first:
What is a Safety Stock?
Safety stock is a certain amount of products that you always keep in stock for each of your products, avoiding selling them and supplying them in a different way.
Instead of counting on the safety stock to supply, products for sale that month are purchased without counting on it , which remains the same.
For example: you buy 50 units of product X every month, c level contact list but maintain a safety stock of 5 units.
In January, you sold all your X products. When it’s time to buy again to replenish your inventory, you won’t buy 45 X products, but 50.
This is basic: safety stock is a concept as old as commerce itself.
Safety stock is the stock that shouldn’t be touched under any circumstances. But to better understand how inventory sizing works, we need to talk about minimum, average, maximum, and reorder points.
These five concepts are fundamental to dealing with inventory. Many stores understand this first part, safety stock, and ignore the rest.
Now you’ll discover everything related to inventory logistics. And then, we’ll talk about practical situations.
Organizational Concepts and General Inventory Logistics
Inventory is a very sensitive part of any business operating within retail.
Many people think that the success of how to make a free android app a business is only related to sales — companies that sell a lot are always ahead.
But that’s not quite the case. The operational and administrative side is what determines whether a company will grow and remain in the market or not.
After all, a company with organized administration but no sales can hold its own well — it knows how much cash it has in the bank, how many products it needs to sell, how many products can be sold, etc.
A company with a lot of sales but a messy administration finds it difficult to grow even though it sells a lot.
And one of the most important points for the administrator of any retail company is precisely inventory.
Here, we will talk about 4 administrative concepts related to inventory:
- Minimum stock;
- Maximum stock;
- Average stock;
- Order point;
Let’s go:
Minimum Stock: What It Is and How to Calculate It
Minimum stock is the minimum quantity of a product that a company must keep in its warehouse to avoid supply disruptions.
It works as a security reserve so that the company does not run out of merchandise before a new order is received.
It is with this concept that you ensure that the sales flow will not be interrupted by a lack of products.
A poorly calculated minimum stock can lead to a shortage of goods (stockouts), negatively impacting sales and the customer experience.
The definition of minimum stock depends lithuania phone number directly on average daily consumption and the supplier’s replenishment time.
Companies that work with suppliers with long delivery times need to maintain a higher minimum inventory to avoid problems.
Formula:
Minimum Stock = Average Daily Consumption × Replenishment Time
Maximum Stock: Control and Planning
Maximum inventory represents the maximum quantity of an item that a company can store without compromising space, working capital or operational efficiency.
Maintaining too much inventory can lead to financial problems — the capital invested in idle goods could be used for other company needs.
Furthermore, products expire and become obsolete. This is natural, especially for perishable or seasonal products.
The maximum stock calculation takes into account the minimum stock and the purchase batch, ensuring that the company always has the ideal quantity to operate without excess or shortages.
Formula:
Maximum Stock = Minimum Stock + (Purchase Lot × Interval Between Purchases)
Average Stock: How to Determine the Average Quantity in Stock
Average stock is an indicator that helps the company understand the average quantity of products stored over time.
It assists in purchasing management and demand forecasting, ensuring a balance between replenishment and consumption.
A well-calculated average stock prevents both shortages and excesses of goods. If the average stock is too high, the company may be investing more than necessary in idle products. If it is too low, there may be difficulties in meeting demand.
