Shopify Demand Planning & Inventory Forecasting Reports

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:

• Past: How many products were sold, and how fast?
• Current: What is the actual stock status?
• Future: How many products do we need and when?

What questions can inventory forecasting answer?

Usually, each question and answer uses its own report. The overview of answers:

• how quickly the inventory is used (sales velocity)
• how to minimize chances of out-of-stock situations
• when to replenish stocks
• what inventory is dead (i.e., without sales)
• what inventory is overstocked
• what is the turnover ratio for stock
• what products require a revamp of pricing or discount policy

This list is incomplete but gives the correct look at the problem.

Key takeaways

• Forecasting requires history. On seasonal markets, for accurate forecasting, you need at least one year of sales history. In other stable (linear) markets, the forecast can analyze the past 90 days.
• Modern reporting and inventory planning platforms allow you to manage stock as a guru.
• Many non-programmable factors may reduce accuracy. You always need to get in touch with the current market situation and adjust forecasts and plans.

Explanations on inventory forecasting

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:

1. sales velocity
2. lead time
3. actual quantity

Key terms and calculations

• 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 QTY - the actual stock quantity.

• 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

Examples of inventory planning reports for Shopify

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.