I was browsing through a subreddit the other day about an unrelated topic and found people asking the question “How often should I buy stock for my store?”. This question is super interesting given it’s been something of second nature to me for the past 20 years!
The short answer to that is; you should always buy just enough stock to cover you for the upcoming sales period but long enough compared to your re-order lead time.
Example of ordering stock for a peak
Let’s say for this example that you sell bunny ear hairbands and you want to look at your stock orders for Easter. The very first thing you need to look at is your lead time. What that lead time means is “the amount of time it will take for my stock to arrive after I order it from my supplier“.
If you order stock from China and it comes by boat this may be 6 weeks or more. However, if your stock comes from Leicester and your store is in Nottingham it may only take a few days. This lead time can actually be an extremely important lever (often overlooked btw) in your profitability, but we will go into that another time.
Once you know your lead time you need to look at your Sales Forecast for the time period between your stock orders.
Let’s say our bunny ears take 10 days to arrive once we order them. We’re running pretty low and Easter weekend is in two weeks so we need to calculate not only for the 10 days till the stock arrives but for the peak sales period that is coming up. We really don’t want to sell out before that weekend.
To do that we can utilize something called Forward Cover.
What is forward cover and how do I calculate it?
Forward cover is a very literal calculation – how many weeks of my forward (or future) sales forecast do I have?
Let’s have a look at the bunny ears again. Here’s what my last 2 weeks sales were, what this week’s and the next 3 weeks’ sales forecasts look like
Let’s say we have 100 bunny ears currently in stock. As we expect to sell 45 this week and 56 next week we have 2 weeks forward cover.
Unfortunately, there is no simple way to calculate this; you have to grab your calculator, input your current stock number (in this case 102) and then subtract each week’s sales forecast until your calculator says 0 or below. Then add up how many weeks you included.
Now we know our forward cover is 2 weeks, we better hurry up and order that stock! But how much should I order?
First, we need to work out how much stock we think we will have left when the order arrives. This is can be little un-scientific unless you have daily forecasting which, for this example (and most of the time in real life!) we don’t have.
So let’s get a rough number; in 7 days we will have sold 45 and in the next 7 we will sell 56 so the best guess we will sell 24 in the remaining 3 days until the stock arrives (56 ÷ 7days x 3 days = 24).
Therefore, will sell 45+24=69 units leaving us with 31 units in stock when our order arrives.
The next question is how long will that stock last? In this example, it will be gone by the end of that week. We are going to sell 56 units that week, we already sold 24 by the time the stock arrived leaving 32 sales for the rest of the week.
We need to ensure we buy enough until more stock could be delivered but we also need to protect that peak sales period.
How much stock should I aim to be left with?
Now we need to basically work backward. You can see from the sales forecast that my sales will really drop off after Easter weekend. As my lead time is only 10 days I probably don’t want to be left with more than 2 weeks cover after the sales peak.
Sales of 22 x 2 weeks = 44. This is approximately how much stock I want to have when I come in after the Easter Weekend. However, I also know that these items will sell later in the year for hen do’s etc.
Having a few extra isn’t a huge issue and I really don’t want to sell out. Let’s go ahead and add buffer stock of 10% which gives us 48 units
So now the maths is easy.
|Stock when the delivery arrives||31|
|Remaining week’s sales||32|
|Ideal closing stock||48|
What happens if the Sales forecast was wrong?
First things first – your sales forecast WILL be wrong it’s just a matter of by how much! I did cover some of sales forecasting in another post which you can find HERE. The key to planning a peak and how to stock for it is to assess where your risks are.
If your stock is terminal (e.g. its Christmas specific or it’s perishable) then having too much stock is a bigger risk than selling out. However, if your stock will live on it might be better to overstock a little.
You cannot know what your true sales number would have been if you always sell out. Therefore the chances are you will understock again next time.
Let’s go back to our bunny ears. We know they will continue to sell late in the year and we don’t know what our maximum is as we sold out last year. Plus headbands are becoming much more trendy. So let’s add a buffer in there again by adding 10% to the required intake. 417×1.1 – 459. I have OCD so let’s round that up to 460.
How often you should order stock for your store is going to come down to a handful of things;
- What is the lead time of this item?
- How long is the Sales period I am looking at?
- Where are my risks?
If the bunny ears sold 10% more than forecast for Easter it would mean we had;
- (31+460)-((368 x 1.1) +32)= 54 units left which is around 2.5 weeks cover
If we had sold 20% less it would have been
- (31+460)-((368 x 0.8) +32)= 165 units left which is 7.5 weeks cover. Which in this case is not the end of the world.
You can also extend your sales forecast so that you can also calculate the forward cover at the end of the peak. This can be especially helpful if there will be another high sales period coming up.
As we have set up our stock buy so that we can re-order straight after the peak, this allows you to re-assess how much you will need at that point.
Over on my Templates page, I have a basic sales, stock, and intake planner. If you need something more, you can always Get in Touch and I can whip something up customised for you! Or if you would like to talk through any of this or get some more advice, I offer a free 30-minute consultation to get you started