Inventory management plays a vital role in the success of your business. If you’re smart about how much product you order, then you can stay ahead of trends and find the balance between running out of product and having too much of it on hand. That’s why ShippingEasy has created a new space for your inventory reports with a couple of additions. These include new velocity and forecast reporting. Let’s dive a little into what this is and how it makes you a smarter online seller.
What is velocity and forecast reporting?
Let’s break down the two parts of velocity and forecast reporting to explain exactly what this powerful tool does for your business.
Velocity is the rate at which you sell products through your various sales channels. This key report gives you a full breakdown of how fast each product is selling over a period of time. This metric also helps identify your fastest or slowest selling products in order to make business decisions beyond reorder quantities. The math behind the scenes is calculating how many items you sold divided by how many days in the sale cycle. Don’t worry, ShippingEasy does this for you! This data can help you decide how to spend marketing dollars to either push products that aren’t moving or feature your fastest-selling products.
Forecasting and Replenishment
If you’re in the business of selling products, you’re in the business of forecasting. Demand forecasting uses velocity data to project future sales and help you make smart decisions. Once you have an idea of how many of which products you sell, ShippingEasy recommends how many units to replenish. The platform takes into account stock you already have and purchase orders currently placed. This way you’re never out of stock and miss a sale.
Who should use velocity forecasting?
Any e-commerce merchant looking to understand the trends behind their product sales better, and how to use that to make smarter decisions around replenishing products. The cost and time savings that come with this smart use of available data cannot be understated. An added bonus is ShippingEasy looks at your sales history to create these reports right at the beginning. No crunching numbers, just enable and go!
Velocity and Forecasting Reports in Action
What does this look like in practice? Let’s look at a couple of examples of how velocity and forecasting reports work to make your inventory management smarter and more effective. We’ll look at each report and digest how they work together to create an easier ordering process.
Calculating Sales Velocity
As you sell products, it’s important to recognize trends to prepare yourself for growth and know when to replenish stock. This is accomplished by looking at your sales history and using the formula we mentioned before: the number of days divided by the number of items sold.
For example: let’s say we are looking at a history of 7 days and sell 7 of the same product. Our velocity is 1. We can take this number and know that we will need at least one of our product in stock every day to meet our sales expectations. Now we have our velocity!
Forecasting For What You Need
The next logical step is to determine how many products we will need in the future, to meet these sales expectations. Now, this is where vocabulary becomes very important, and we have a few key terms to help paint this picture.
Our forecast period is the time frame we use to run the numbers and restock. This can range from 7 days up to 90 days. The next items we want to take in consideration are available stock and awaiting stock. Available stock is how much of that product we have right now, awaiting stock is how many we have requested from our supplier. By discounting awaiting stock, we can determine if we have enough coming in or need to buy more.
The next major step is determining stockout. This means how many days can we sell a product until we run out. If our velocity is 1 and we only have 7 products on hand with no stock coming in from our supplier, that means we have 7 days until we run out. Now that we know this, we can prepare our purchase order and order what we need.
Creating a Purchase Order
With all of this math, it might seem like manual work is involved, but ShippingEasy has made the calculations easy and automated. The only items we need to know are specific information based on reordering, such as the lead time. This is the time it takes for a merchant to send a purchase order to their supplier and that order to be delivered. This universal number can vary per product. Combine this information with the forecast period to create a reorder period. Knowing this will ensure that you have enough time to see your forecast period, order your products, and receive them before running out of stock!
For example, if a lead time is 3 days and we have enough stock for 7 more days, then we need to create our order at least 3 days prior to our projected date that we’d be out of sellable stock.
A couple of the biggest questions for all merchants are: “How far ahead do I have to reorder so I don’t run out of stock?” and “How much stock do I request?” That’s where ShippingEasy plays its most significant role. These numbers are automatically determined for you and displayed when you are setting up your purchase order.
The amount of time you have before you have to place a purchase order is called Days to Reorder or DTR. This metric appears on the products page for each product, and on the purchase order you are creating. This number automatically counts down as you come closer to the last possible date to re-order before your stock hits 0.
The quantity ShippingEasy recommends for re-ordering is called Quantity to Buy or QTB. This recommendation takes into account your lead time and the amount of product you need to fulfill all orders during your reordering period. You’ll also see this when creating a purchase order, making it easy to create the request fast!
Another facet of this calculation is your in-stock expectation, which is a percentage and represents how full you want your stock to be. It could be 95% or 99%. It really depends on how stocked you can keep your inventory, which is why you can control this number within ShippingEasy.
Other terms to consider: lead demand, projected available, and projected sales.
- Lead demand is how many products will sell based on velocity in the amount of time it takes for my purchase order to arrive. If a lead time is 3 days and velocity is one, then lead demand will be 3 products sold over this time period.
- Projected sales and projected available go hand-in-hand. These actions occur during your reordering period. You get a clear picture of how many items you will sell and how many units you will have leftover.
Whether you’re just beginning your business or a seasoned vet, ShippingEasy keeps all of your velocity forecast reporting in order. Our award-winning customer success team is available to help out at any time. Let’s get organized!