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How do you calculate optimal stock levels?

When you accurately calculate stock level, you have enough stock on hand to prevent stockouts or backorders but not so much that you need extra space to store the extra inventory that could sit for a long time incurring long-term storage fees. Maintaining the ideal stock level is based on several factors that are constantly in motion. To optimize your stock level, you need to determine the amount of inventory you have on hand, the amount on order from suppliers, the amount in your fulfillment pipeline, and the amount of time it will take to receive the items from suppliers. Implementing advanced warehouse management and inventory management software that provides real-time data, such as inventory counts across all of your channels, at any given time is important to determine your next plan of action. Receiving real-time alerts when your inventory items reach a certain level helps keep your inventory lean and healthy.

However, knowing when to set alerts for each product in your inventory also depends on the velocity of sales for different SKUs. For your fast-moving products, it’s wise to set up an alert based on how long it will take to restock those items. If it takes three weeks from the time you send a purchase order to your suppliers to receiving your items in your fulfillment centers, then you should calculate a month's lead time to receive and process your restock shipment. For slower-moving SKUs, such as expensive, luxury items, you can reorder based on previous sales cycles. Your 3PL fulfillment service’s data-powered software should allow you to analyze previous sales data to determine how much inventory you need to have on hand for these slower-moving items.

One pitfall online vendors want to avoid involves over-ordering fast-moving stock. Things change rapidly in the online shopping world. Your fast-moving cell phone accessories, such as chargers, may be rendered obsolete when a new phone is released. It is also important to set up tracking alerts that let you know if your restock hasn’t arrived in a certain window of time so you can promptly follow up. It can also be helpful to set up alerts that automate reorders from your suppliers. The effects of the COVID-19 pandemic are evident online, as well as in your local brick and mortar locations in terms of product shortages due to suppliers going out of business, long waiting times at Customs, and so on. Therefore, it’s wise to line up several suppliers for your best-sellers to keep your supply chain running smoothly when unforeseen circumstances threaten to upset your optimal inventory level.

Partnering with Phase V means your e-commerce business never again needs to worry about inventory levels being low enough to lead to out of stock or backorder items. Call us today to discuss how important it is to calculate stock levels and how Phase V can help.