Determine the optimum level of inventory for your business
Inventory management is a crucial aspect of a profitable business. Maintaining the right level of goods without overstocking is essential for cash flow. However, it can be difficult to estimate inventory for a new or growing business. Our calculator can help you determine your stock needs with only a few details about your operations. Then, you will be provided with the minimum and maximum inventory that you should hold in your warehouse. Let’s take a look at what this calculator can be used for and why it’s important.
Managing retail inventory
Each business is unique and has distinct nuances that can dictate inventory levels. Being familiar with the nature of your products can help you establish the right amount of stock.
It is essential to have enough goods to fulfill customer needs and prevent back orders. You also have to stock enough to protect your business from any supply issues- without overspending. A successful business will stand out by its ability to meet varying market demands.
It all comes down to inventory. By properly managing your inventory, you can increase your gross profits and keep your customers happy.
On the other hand, poor inventory management can result in overstocked items or items out of stock. This can cut into revenue and lead to slow order fulfillment. Having too much stock can take up valuable space. Further, incorrect inventory management will deplete money from added operations.
You can avoid these problems by using the inventory analysis calculator. From your results, you can easily structure your inventory spending and establish all your stock needs.
What is this calculator for?
The inventory analysis is designed to help you work out what you should hold in your storage facility. It will also help you figure out what should have left by the end of the year.
The system can estimate your product demands according to the growth of your business. It will even adjust to the lead-time you need to receive deliveries. With this information you can safely establish your working capital needs.
Your ability to forecast what your customers want is vital for accurate calculations. It’s also important to have a good grasp of your retail products. You will need to determine your starting inventory and safety stock before using the calculator.
How to establish your starting inventory
When establishing your starting inventory and safety stock, there are a few things to consider. First, find out how long it takes to receive your goods, this is called lead-time. It’s important to know if the product is custom-made or a commodity. Then, look at the value of the goods. High-end merchandise won’t need as much stocking.
Next, check if the product has a shelf life and how long it can be held on to. Some products can be sold alone while others are sold in combination. Defining these attributes will help you make an accurate prediction of your initial inventory needs.
Further regard should be if you need any materials or components to produce your goods. In this case, it’s important to track the products that are in progress versus the goods ready for sale.
How to use the calculator
The inventory analysis calculator has two parts: an information intake and integrated results. You need to provide some basic information about your business and sales to get an accurate report. Let us review this information together.
Step 1: On the first line of the calculator, you should identify your annual growth rate. This figure dictates how much you expect your sales to grow per year.
Step 2: Next you can add your starting inventory to the second line of the calculator. This is the inventory you have on hand currently. You can use the up or down arrows to make the input easier.
Step 3: You should add the initial demand of your product on the third line of the calculator. That is to say, the number of units you expect to sell in the first week of operations.
Step 4: Next, identify the starting level of safety stock you require. This figure is expressed as a percentage of your sales. The safety stock should prevent your items from going on back order. This figure will vary based on the type of product you are offering and will increase as your business grows.
Step 5: Lastly, you can document your order lead-time on the last line of the calculator. This figure is expressed in weeks. It is the time needed to receive your inventory shipment after placing the order with your supplier.
Step 6: Please view your results
Once you have added this information to the calculator you can view your report. There will be various prompts, graphs, and tables detailing your inventory needs.
You will see some preliminary figures to the right of the inputs. In this area, you can view our suggestion for your inventory levels. You can see the minimum and maximum inventory you should hold. Plus how much safety stock you should have initially, versus the end of the period.
Below the inputs is a smart prompt of what your average inventory target should be. For more detailed information, view the integrated reports.
The first tab is your inventory level per week. This chart shows the growth of your product sales and inventory needs for the next 52 weeks. The general idea is to turn over your inventory as much as possible without stocking out. This will keep your business running smoothly and keep customers satisfied.
The next tab, inventory balances by week, shows a summary of your weekly inventory needs. This table displays the fluctuation of your inventory levels over the next year. If you pay close attention, you can see the turnover of your stock based on the lead-time you provided. The weekly inventory level will reduce to the point of safety stock before being replenished. The goods should never deplete fully but should have regular turnover.
By utilizing this service, you can establish an inventory level tailored to your company. Optimizing the levels of stock in your warehouse is important. Through proper inventory management, you can prevent back orders of raw materials or finished goods. You will be able to keep correct levels of stock to guarantee that your capital is used efficiently. This will also insulate your business if production problems arise.
Remember to bookmark this calculator and save it to the home screen of your smart phone or tablet. Come back to use this great tool as your company grows and as new products are introduced. By sharing us on social media, you can help other new business owners establish their inventory needs too!