When it comes to inventory management, getting it right is essential. Inventory measures and calculations can help you with the analysis so that you can make future decisions based on them. The following are some of the most widely used measurements and their formulations.
Finished Goods Inventory
The finished goods reflects how much excess stock there is for customers to purchase. This statistic may be used to calculate the quantity and value of items available for sale, as well as the amount of inventory you’ll need to avoid stockouts. Using the following formula, you can figure out the overall worth of completed items:
- Value of Finished Goods = (Cost Of Goods Manufactured – Cost Of Goods Sold) + Value of Previous Year’s Finished Goods
Inventory Holding Cost
The formula for calculating holding unsold inventory, including warehousing, insurance, transportation, labor, shrinkage, and opportunity costs is as follows. This is the calculation used to calculate inventory holding expenses.
- Inventory Holding Cost = (Storage Costs + Employee Salaries + Opportunity Costs + Depreciation Costs) / Total Value of Annual Inventory
Inventory Safety Stock Formula
Safety stock in inventory makes it possible for you to anticipate unanticipated events by keeping enough on hand to cover any variances. This statistic helps you be prepared for emergencies and supply chain disruptions, among other things. As a result, it serves as your inventory’s safety net. To calculate your company’s inventory safety stock, use the following equation:
- Inventory Safety stock = (Maximum daily usage x Maximum lead time in days) – (Average daily usage x Average lead time in days).
Inventory Turnover Rate
The turnover rate is the number of times an item is restocked and resold. It’s a comparison between how many times inventory is replenished and sold in a given period to compute turnover frequency. To get your company’s overall turnover rate, use the following formula:
- Inventory turnover rate = cost of goods sold (COGS) / average inventory
Inventory Days on Hand
This is yet another formula that gives you an indication of the turnover rate and allows you to assess how many days of inventory you have on hand, allowing you to replenish in time and avoid a stockout. You may also use this metric to calculate your supply lead time. Estimate your eCommerce company’s total inventory days on hand using the following:
- Days on hand = (average inventory for the year / cost of goods sold) x 365
Inventory Reorder Point Formula
The following formula determines how much stock you need on hand before reordering. This ensures that you have enough stocks and shortages. It also guarantees that you reorder before things get out of control. When the time comes, many inventory management systems remind you of this. The inventory Reorder point calculation is as follows:
- Reorder point formula = demand during lead time + safety stock
Inventory shrinkage occurs when accounting levels differ from real inventory levels. Employee theft, management mistakes, and consumer theft are examples of this. It’s calculated as a percentage. To get your company’s overall shrinkage rate, use the following calculation:
- Inventory shrinkage rate = (recorded inventory – actual inventory) / recorded inventory
Reorder Quantity Formula
The reorder quantity is the highest number of items you should ask for from a manufacturer or supplier when restocking. This reorder quantity should not be excessively high, and it should not be insufficiently low. The following equation may be used to determine the optimal reorder quantity:
- Optimal Reorder Quantity for an SKU = Avg. Daily Units Sold x Avg. Lead Time
eCommerce Inventory Management FAQs
The bulk of the material in this textbook is concerned with management. You may have an effective grasp on it, but there are still many questions left unanswered by the sections above. The following are some popular management-related questions and their solutions.
What are the 4 Types of Inventory?
The four types are raw materials, work-in-progress (WIP), completed goods, and sellable stock. WIP inventory includes labor and other overhead costs. Only sellable items are ready to be delivered from the four mentioned inventories because they are the only ones that are sellable.
How do eCommerce Stores Get Inventory?
Shoppers who purchase on Amazon.com or other E-Commerce platforms acquire completed items directly from a manufacturer or supplier. These goods are then transported to a warehouse or fulfillment center, where they will be stored until they’re ready to be sent out.
What are the 3 Major Management Techniques?
The most common management techniques include FIFO, Forecasting Demand, and Setting Reorder Points. These methods may be used to manage your company’s inventory.
What is the EOQ model?
Another name for the optimum lot size is Economic Order Quantity (EOQ). It’s a number that determines how many items should be purchased at one time in order to avoid overstock and understocking. For companies, it also aids in the reduction of logistics costs, storage area, stockouts, and overstock expenditures.
Improve Inventory Management with Launch Fulfillment
Launch Fulfillment is a supply chain management solution that links eCommerce businesses with 3PL companies across the world. Launch Fulfillment integrates with popular ecommerce platforms including WooCommerce, Shopify, Amazon, Etsy, Magento, and eBay. Fulfillment by Amazon is a powerful management tool that streamlines processes and helps you run your business. It will help you use your products, manage customer orders, ship items to buyers, fulfill returns and exchanges, maintain low stocks levels for faster grab-and-go purchases, track cycle counts for production planning purposes, and more.
You may sync your channels with ecommerce platforms, optimize delivery using sophisticated shipping capabilities, simplify operations via order management, and obtain assistance from our expert customer care staff if you use Launch Fulfillment.
With Launch Fulfillment, you may set up reorder notifications for each item and be alerted when stock is required replenishment. This way, you can stay on top of your restocking game and avoid running out of stock.
Detailed Analytics & Reporting
With a single location where all of these features are included, you’ll have complete control. You won’t have to worry about exposing your items since they’ll be tracked and replenished in the same spot. Launch Fulfilling, which includes Logs and Reports, allows you to gather data and analyze it to figure out how to manage your inventory effectively. Reporting and analysis may provide you with an indication of how various items are performing in your eCommerce store.
You may establish new purchase orders using Launch Fulfillment by entering the supplier and receiving warehouse. The Launch Fulfillment interface allows you to rapidly increase any existing shortages. You may keep track of any PO changes using Launch Fulfillment. You have the option to restock a product or not while processing returns.
Maintaining a sufficient inventory is critical for an eCommerce firm, and how effectively orders are fulfilled improves the client experience. One channel is all that is required for traditional selling through physical locations, but modern-day eCommerce with multichannel selling may be more challenging to manage.
Launch Fulfillment makes it easy to keep track of everything, even though there are often several forms to complete. There’s no need to seek for the finest management system because strong logistics solutions like Launch Fulfillment make things simple.
Launch Fulfillment’s management capabilities are excellent. So, please join up with Launch Fulfillment right now to make managing your stock even easier. Learn more about fulfillment centers.