When and how much should we reorder of what for the best cash flow?

Category: Operations
When and how much should we reorder of what for the best cash flow?

Paul ‘Dilge’ Dilger, CEO of Ecommerce ERP provider Volo Commerce, outlines in a series of posts where you should go to answer the three biggest questions.

In an earlier post in this series, I suggested the three most important questions you can ask about your business operations:

  • What margin are we making on each order?
  • When and how much should we reorder of what for the best cash flow?
  • How are we doing against plan?

In this post I’m going to tackle the second question and touch on how we help our customers find the answer.

The vital role of understanding stock outages and forecasting

You don’t want stock outages, which can mean lost sales and let-down customers. You also don’t want too much inventory which ties up your money and drives up storage costs. Furthermore, missed opportunities due to stock outages also directly impact margins. Here are seven pretty obvious reasons for getting to that happy place in the middle.

  1. Meet your customers’ demand. If you have the right products in stock at the right time, you can satisfy your customer requirements and keep them happy.
  2. Maximise your sales. Forecasting your stock effectively helps you anticipate demand patterns and increase your sales of your popular products.
  3. Minimise your costs: Accurately forecasting demand and the required stock levels benefits your cash flow and profitability.
  4. Improve your operations. Getting your stock right reduces customer enquiries and the resources you need to service those enquiries.
  5. Enhance relationships with your suppliers. Working closely with your suppliers on their side of the stock forecasting should help you improve stock availability and get better terms.
  6. Learn from your data. Better understanding demand and seasonality trends means getting your inventory levels right, which is good for growth and profitability.
  7. Get a handle on the future. Using the past and present enables you to look forward and avoid getting caught out by changing behaviours and preferences.

All pretty straightforward then, in theory, but what about in practice? How do we tackle it for our customers? In the Inventory section of Volo Vision, our reporting and analysis suite, we provide them with a dozen reports all related to stock. Here’s how a typical Volo user might understand their stock position and balance their stock on an ongoing basis.

  • Start with the Inventory to Sales Ratio report, an industry-standard ratio of your average inventory value divided your net sales, to make sure you’re within recommended best practice ranges. Do this overall or by supplier
  • Then go to the Dead Stock report to see what stock is languishing, forgotten about and tying up your cash. This will give you suggestions for where you can do promotions, discounts or bundles to free up cash
  • Next, go to the Stock Outages report to see all products that have recorded sales and also experienced a stock outage during the selected period, resulting in the detailed loss of potential sales. Dig into individual SKUs, over any time period, then also look at your product run rate and suggested replenishment numbers so you can re-order for full stocking and reduce those lost sales
  • If you don’t want to or can’t go in regularly, set up email notifications with a CSV attachment telling you what to re-order
  • If you like, have the system automatically generate the re-order PO for you

For all of this, you can do your analysis at a ‘purchase pack’ level as well as an individual SKU level.

Our leading customers regularly push us to improve existing reports or create new reports to help them squeeze every possible advantage from their stock strategy.  

You can do this work yourself, or you can get someone to build it for you, or you can talk to us to put it in place as soon as you’re ready.

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