Accurate inventory forecasting and demand planning are essential for any store that works with its own warehouses. The precise forecast allows for preventing out-of-stock for trending products, reduces overstocks, and in time identifies dead inventory.
Opposite to inventory value report, inventory forecasting - also known as demand planning - asks questions for all three time periods:
Usually, each question and answer uses its own report. The overview of answers:
This list is incomplete but gives the correct look at the problem.
To know how many products we need for next week or month, we should understand how fast we will sell products - it's sales velocity.
Once we know the sales velocity, we can easily calculate how many products we need for the next 14 days. But we also need to know when to place an order for the supplier - it's a reorder date or reorder point if we talk about quantity.
Also, to forecast, we need to know one constant number - how many days we need to transfer the product from the supplier's stock to our stock - it's lead time.
In overview, for simplified forecasting, we need just 3 values:
Sales Velocity - the number of sold items for the period (usually means velocity per day)
Simplified formula to calculate velocity based on the past 30 days:
Sales Velocity = Sold Quantity ÷ 30
Lead Time - how many days you need to receive a product to your stock (that time includes all steps: placing an order to the supplier, signing, delivery, etc.)
Lead Time Quantity - how many items will be sold within the Lead Time period.
Lead Time QTY = Lead Time × Sales Velocity
Service Level - the expected probability of not hitting a stock-out during the next replenishment cycle (or the probability of not losing sales).
Usually, the Service Level is in the range of 70-90%.
Safety Stock - the extra quantity of inventory (buffer or reserve) to prevent out of stock if some problems occur.
Safety Stock = Sales Velocity × Lead Time × Service Level
Reorder Point (ROP) - the stock quantity that triggers replenishment.
Reorder Point = Safety Stock + Lead Time QTY
Stock Covered Time - how many days the current stock will cover sales.
Stock Covered Time = Stock QTY ÷ Sales Velocity
Stockout QTY - if the value is positive, it is a deficit, since the product can be delivered from the supplier in time, even if the order is placed right now.
Stockout QTY = Lead Time QTY - Stock QTY
Replenishment Quantity - how many items need to be ordered to prevent out-of-stock situations.
Replenishment QTY = Reorder Point QTY - Stock QTY
Replenishment Time - when (how many days) products should be reordered.
Replenishment Time = Stock Covered Time - Lead Time
Below we have collected different variations of inventory forecast and demand reports that can be used with our app. Additionally, you can adjust built-in inventory reports or create new reports.
It's the default report with simplified calculations and only required columns.
|ProductsName||Product VariantsName||ForecastSales Velocity||Inventory LevelsTotal Available||ForecastForecast QTY 21d||ForecastReplenishment QTY 21d|
|Helios Endurance Tank||Blue / L||0.47||0||9.80||10|
|Adrienne Trek Jacket||Gray / XS||12.4||78||260.4||183|
|ProductsName||Product VariantsName||ForecastSales Velocity||Inventory LevelsTotal Available||ForecastStock Covered Time||ForecastReplenishment||ForecastReplenishment Time|
|###||###||2||8||4 days||30||0 days|
|###||###||1.5||80||54 days||0||40 days|
|ProductsName||Product VariantsName||ForecastSales Velocity||Inventory LevelsTotal Available||ForecastStock Covered Time||ForecastOverstock QTY|
|ProductsName||Product VariantsName||ForecastSales Velocity||Inventory LevelsTotal Available||ForecastStock Covered Time||ForecastStockout QTY|
|ProductsName||Product VariantsName||ForecastSales Velocity||Inventory LevelsTotal Available||Product VariantsLifetime Sales||Product VariantsFirst Sold At||Product VariantsLast Sold At|
|###||###||0||1420||19||Oct 30, 2018||Mar 29, 2022|
|###||###||0||14||5||Feb 15, 2019||Sep 19, 2021|
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