Optimizes inventory levels, predicts demand, and manages stock across warehouses. Use when analyzing inventory, planning reorders, or optimizing supply chain.
This skill provides systematic approaches to inventory optimization, demand forecasting, and supply chain management for e-commerce and retail businesses.
| Metric | Formula | Target |
|---|---|---|
| Days of Supply | Current Inventory / Daily Sales Rate | 14-45 days |
| Stock Turn | COGS / Average Inventory | 4-12x annually |
| Fill Rate | Orders Fulfilled / Total Orders | > 95% |
| Stockout Rate | Stockout Days / Total Days | < 2% |
Calculations:
Days of Supply = Current Inventory Units / Average Daily Sales
Stock Turn = Annual COGS / Average Inventory Value
Fill Rate = (Orders Shipped Complete) / (Total Orders) × 100
Stockout Rate = (Days with Zero Stock) / (Total Days) × 100
Reorder Point Formula:
Reorder Point = (Lead Time × Daily Sales) + Safety Stock
Example:
- Lead time: 14 days
- Daily sales: 50 units
- Safety stock: 200 units
- Reorder Point = (14 × 50) + 200 = 900 units
Safety Stock Formula:
Safety Stock = Z × σd × √L
Where:
Z = Service level factor (1.65 for 95%, 2.33 for 99%)
σd = Standard deviation of daily demand
L = Lead time in days
Economic Order Quantity (EOQ):
EOQ = √[(2 × D × S) / H]
Where:
D = Annual demand
S = Order cost per order
H = Holding cost per unit per year
| Status | Days of Supply | Action Required |
|---|---|---|
| Critical | < 7 days | Immediate reorder, expedite |
| Low | 7-14 days | Place reorder now |
| Normal | 14-45 days | Monitor, scheduled reorder |
| Excess | > 45 days | Evaluate markdown/transfer |
| Dead Stock | > 90 days, zero sales | Liquidate or dispose |
Immediate Actions:
Reorder Decision Matrix:
| Scenario | Standard Order | Expedited Order |
|---|---|---|
| Lead time < stockout | Yes | No |
| Lead time > stockout | No | Evaluate cost |
| High margin product | Consider | Yes |
| Low margin product | Yes | No |
Evaluation Steps:
Analyze why stock became excess
Markdown Strategy:
Markdown % = (Holding Cost × Projected Days) / Unit Cost
If Markdown % > 30%: Consider liquidation
If Markdown % 10-30%: Promotional pricing
If Markdown % < 10%: Price optimization
Dead Stock Cost = Units × (Holding Cost + Opportunity Cost)
Liquidation Value = Units × (Salvage Price - Liquidation Cost)
Decision: Liquidate if Liquidation Value > 0 or Dead Stock Cost/month > Liquidation Cost
| Method | Best For | Accuracy |
|---|---|---|
| Moving Average | Stable demand | Medium |
| Exponential Smoothing | Trending demand | Medium-High |
| ARIMA | Seasonal patterns | High |
| ML/AI | Complex patterns | Highest |
Forecast = (α × Recent Sales) + ((1-α) × Previous Forecast)
Where α = 0.2 to 0.5 (smoothing factor)
Higher α = More responsive to recent changes
Seasonal Index = Period Sales / Average Period Sales
Adjusted Forecast = Base Forecast × Seasonal Index
Example (Q4 Holiday Season):
- Base forecast: 1,000 units
- Q4 Index: 1.8
- Adjusted forecast: 1,800 units
| Factor | Weight | Consideration |
|---|---|---|
| Regional demand | 40% | Historical sales by region |
| Lead time to customers | 25% | Shipping speed goals |
| Warehouse capacity | 20% | Available space |
| Cost | 15% | Storage and shipping costs |
Transfer if:
1. Source warehouse: Days of Supply > 60
2. Destination warehouse: Days of Supply < 14
3. Transfer cost < (Stockout cost × Stockout probability)
| SKU | Current Stock | Days Supply | Status | Action |
|---|---|---|---|---|
| Metric | This Week | Last Week | Trend |
|---|---|---|---|
| Fill Rate | |||
| Stockout % | |||
| Avg Days Supply | |||
| Inventory Value | |||
| Stock Turn (Ann.) |