Forecasting demand using inventory flow rate
Posted: Sun Dec 22, 2024 9:28 am
Demand forecasting is essential for retailers to accurately predict the volumes of products they need to purchase. The inventory a retailer purchases is directly linked to its cash flow, and if it has too much or too little inventory, it loses money through discounts or missed sales.
A study reveals a global loss for retailers of $1.1 trillion due to overstocking and stockouts. To avoid overstocking or understocking, it is necessary to know when to restock and in what volumes and to know approximately how long the inventory will sell.
To forecast demand, retailers have a key indicator: the inventory flow rate. This rate allows them to predict the demand for a product and purchase the right quantities from suppliers and manufacturers, in order to maximize their profits and avoid having to give discounts.
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What is the inventory flow rate?
Inventory flow rate measures the amount of inventory a retailer sells compared to the amount it purchased from a manufacturer. Retailers typically use their inventory flow rates to gauge how quickly they can sell a product taiwan cp number and turn their initial investment into revenue.
Beyond analyzing sales volume and how quickly a product sells, inventory flow rates help retailers understand how efficiently they are turning inventory and avoid carrying costs or discounts.
Why measure inventory flow rate?
Measuring inventory flow rate allows you to analyze the efficiency of the goods you purchase from manufacturers or suppliers. This rate helps retailers determine how quickly products from certain manufacturers are selling.
This information allows retailers to more effectively determine their inventory purchases and ensure they have enough inventory to meet demand, without excess inventory.
Inventory Flow Rate and Inventory Management
Inventory management is a delicate balancing act. If a retailer has too much inventory, it may be difficult to sell it all at full margin. If it has too little inventory, it may not be able to meet customer demand.
The inventory flow rate can help the retailer adapt its product sourcing strategy, depending on how quickly they are sold.
The retailer can calculate their inventory flow rates by product type, product category, brand, or any other category they choose in their POS system . Calculating the inventory flow rate, regardless of the category, helps determine whether investing in a manufacturer's products (and product types, if more specific information is desired) provides a quick return on investment.
A high inventory flow rate indicates that the retailer has sold inventory quickly, within a given time frame. Selling inventory quickly at full markup helps keep gross profit margins as high as possible.
A low inventory flow rate tells the retailer that they are not selling the products in question as quickly as expected. If inventory is not selling quickly, it may be necessary to offer discounts to move it, which will impact profit margins and reduce return on investment.
However, a product’s sell-through rate doesn’t necessarily provide such clear-cut information. While it can tell you whether or not customer demand has been high, it doesn’t tell you why. A product’s success depends largely on a variety of factors: seasonality, style, and that social currency of hype.
A low sell-through rate won’t tell you why a product isn’t selling. To find out, you’ll need to dig deeper, study trends, and solicit feedback from your customers.
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How to calculate inventory flow rate
The inventory flow rate is calculated by dividing the number of units sold by the number of units received and multiplying the result by 100.
A study reveals a global loss for retailers of $1.1 trillion due to overstocking and stockouts. To avoid overstocking or understocking, it is necessary to know when to restock and in what volumes and to know approximately how long the inventory will sell.
To forecast demand, retailers have a key indicator: the inventory flow rate. This rate allows them to predict the demand for a product and purchase the right quantities from suppliers and manufacturers, in order to maximize their profits and avoid having to give discounts.
Go online and sync your physical store.
Create your online store
Learn more
What is the inventory flow rate?
Inventory flow rate measures the amount of inventory a retailer sells compared to the amount it purchased from a manufacturer. Retailers typically use their inventory flow rates to gauge how quickly they can sell a product taiwan cp number and turn their initial investment into revenue.
Beyond analyzing sales volume and how quickly a product sells, inventory flow rates help retailers understand how efficiently they are turning inventory and avoid carrying costs or discounts.
Why measure inventory flow rate?
Measuring inventory flow rate allows you to analyze the efficiency of the goods you purchase from manufacturers or suppliers. This rate helps retailers determine how quickly products from certain manufacturers are selling.
This information allows retailers to more effectively determine their inventory purchases and ensure they have enough inventory to meet demand, without excess inventory.
Inventory Flow Rate and Inventory Management
Inventory management is a delicate balancing act. If a retailer has too much inventory, it may be difficult to sell it all at full margin. If it has too little inventory, it may not be able to meet customer demand.
The inventory flow rate can help the retailer adapt its product sourcing strategy, depending on how quickly they are sold.
The retailer can calculate their inventory flow rates by product type, product category, brand, or any other category they choose in their POS system . Calculating the inventory flow rate, regardless of the category, helps determine whether investing in a manufacturer's products (and product types, if more specific information is desired) provides a quick return on investment.
A high inventory flow rate indicates that the retailer has sold inventory quickly, within a given time frame. Selling inventory quickly at full markup helps keep gross profit margins as high as possible.
A low inventory flow rate tells the retailer that they are not selling the products in question as quickly as expected. If inventory is not selling quickly, it may be necessary to offer discounts to move it, which will impact profit margins and reduce return on investment.
However, a product’s sell-through rate doesn’t necessarily provide such clear-cut information. While it can tell you whether or not customer demand has been high, it doesn’t tell you why. A product’s success depends largely on a variety of factors: seasonality, style, and that social currency of hype.
A low sell-through rate won’t tell you why a product isn’t selling. To find out, you’ll need to dig deeper, study trends, and solicit feedback from your customers.
Enter the new era of retail
Discover in this free guide the benefits of launching an omnichannel sales strategy.
Download the guide for free
How to calculate inventory flow rate
The inventory flow rate is calculated by dividing the number of units sold by the number of units received and multiplying the result by 100.