The Basics of Ecommerce Inventory Depletion

August 30, 2016

It may not be the most exciting aspect of selling online, but inventory management is the backbone of any successful ecommerce store.  Managing inventory affects nearly every aspect of online retail, including shipping times, order fulfillment, customer satisfaction and revenue.  To stay competitive and optimize revenue, you need real time insight into inventory data. This will help you determine when to order enough stock to satisfy consumer demand without tying up too much capital and space on products you don’t need.

42% of shoppers abandon shopping carts because items are out of stock Pulse of the Online Shopper

What is the Best Time to Reorder? Use Data to Find the Answer

Making accurate decisions about when to reorder requires inventory predictions based on data. The more accurate your forecasting, the better you’ll be able to ensure items are in stock and inventory costs are reduced. The following data points will help you determine when and how much you should reorder.

Quantity Sold

At any given time, you should be able to view the number of items you have sold in each product category. Viewing this data for a selected date range enables better inventory decision making.

Quantity Left

By pulling data from your ecommerce platform you should be able to see the number of products remaining in your inventory. It’s critical to follow this metric closely to avoid out of stock items and lost sales.

Inventory Velocity

Inventory velocity, or turn, is determined by the time it takes to sell each individual item in stock. Accurate data on velocity can help you predict the best timing for reorders.

Depletion Days

If you know how many days until your stock will be depleted, you can place your reorders with confidence. This metric is based on the quantity available divided by velocity, which determines, on average, the number of days left until the product will be out of stock.

Lead Time

Lead time is the amount of time it takes your supplier to deliver goods once you have placed a reorder request. Keep track of the average lead time from each of your suppliers to plan future orders accordingly.  

Formulas to Maximize Inventory Levels

Economic Order Quantity (EOQ)

This is an accounting formula that determines the best order quantity that will meet customer demand while minimizing inventory costs. You’ll need to know your annual demand, order cost and annual carrying cost per unit. To get a general idea of how EOQ is calculated, try this online calculator using data from your own online store.

Reorder Point (ROP)

The Reorder Point formula will help you determine when it’s time to reorder. It’s a predetermined level of inventory that reminds inventory managers to reorder with just the right quantity to optimize turnover. To get an accurate number, you’ll need to know the lead time and the estimated demand for the products during that time. This brief accounting guide explains how to calculate ROP.

Measure the Quality of Your Inventory Management

In addition to knowing when and how much to reorder, it’s important that store owners keep tabs on the overall quality of their inventory management process and strategy. Tracking these trends will help you determine whether you need to make changes or improvements.

Lost Sales

For the time and money you spend attracting shoppers to your online store, the last thing you want is an out of stock item when a shopper is ready to buy. Track this metric to understand the number or percent of customers who placed an order but left empty handed because the product was not in stock.

Order Cycle Time

How long does it take your ecommerce store to fulfill a customer order? In order to stay competitive, you should regularly measure the time it takes a product to be delivered to the customer from the moment they order online.

Item Fill Rate

This metric refers to the percentage of products ordered by your customers that you’ve been able to fulfill and ship. An average or low fill rate means you should re-evaluate your inventory management strategies or tools.  Remember that inventory optimization is not a one-off activity. Competitive ecommerce stores optimize inventory as part of their everyday operations. Having a solid strategy in place using inventory data is also important as your business grows and your products change. Use these tips to keep your shelves stocked and your customers happy.  

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