Min/Max Inventory: Is it really the best way to set your restock levels?

Guest Contributor 26 January 2022

If you’ve been in the ecommerce game for long, you know the #1 rule: control your stock or it will control you. Thing is, without a firm grip on your minimum and maximum stock levels, controlling your inventory is easier said than done — leaving customers (and your pockets) feeling the sting of stockouts and overstocks.

With one-third of businesses missing a shipment because they sold an item that wasn’t in stock, and average stock predictions hitting an accuracy rate of just 63%, something clearly needs to change.

So, how do you know when is the best possible time to replenish your stock?

Today, we’ll dive into how you can set the right inventory levels based on your supply chain lead times and product sales behavior, dig into the best ways to view minimum and maximum days of stock, and help you build sustainable stock levels that keep the revenue flowing.

Are you doing all the heavy lifting in your inventory management? Find out how Flieber makes it easy.

Why it pays to have the right inventory levels

In an ideal world, the day you replenish your inventory would be the same day you run out of stock. But if you’ve been in the real world of ecommerce for long, you know this is rarely the case.

To reach and maintain optimal stock levels, you need to keep a watchful eye on the two key levers that impact your stock replenishment strategy: inventory and sales.

For inventory restocking to be as profitable as possible, it’s important to replenish at exactly the right time — that means after the product is produced, makes its way through your supply chain and reaches your warehouse.

Replenish too early and you’re keeping your cash flow locked into unused inventory. Replenish too late and you’re putting your business at risk of lost sales due to stockouts.

A great way to protect your business against both stockouts and overstocks is to keep buffer stock in case you don’t receive your inventory by the forecasted stockout day.

Minimum and Maximum Days of Stock vs. set units: Which approach is best?

The way most retailers set their buffer stock is by either using a set number of days of stock, or a set number of units. When they hit that figure, their inventory management system will let them know it’s time to restock.

Sounds simple enough. So, why do so many retailers still go out of stock?

Because more often than not, inventory limits set in units can actually set you up to fail.

Why? Because sales velocity can change, fast. And when your inventory availability and sales pace aren’t aligned, it can leave you suddenly without stock and scrambling for solutions.

 Let’s take a closer look at the effect sales pace can have on inventory:

  • You set a 100-unit cap on your inventory levels.
  • Your sales jump from 10 to 20 units per day.
  • The sudden change causes your days in stock to rapidly reduce to just 5 days, leaving you destined for a stockout.
  • If your sales velocity increases further to 25 units daily and you want to keep 20 days of stock, you would have to restock at 500 items sold and have a buffer in place to stay protected.

Instead of taking this approach, some retailers will focus on minimum and maximum days of stock.

For example, if you set 15 stock days as your minimum and 60 days as your maximum, you might keep 45 days of buffer stock to maintain a healthy inventory level.

This approach can work well but unfortunately, many retailers only set a blanket limit of minimum and maximum days of stock across their entire product portfolio. And that’s a problem, because not all SKUs are stable and easy to forecast.

Why product predictability is the secret to stable inventory levels

Are your forecasts all over the place? Are you constantly having to increase your forecasts? Are interruptions with vessels and suppliers causing delays?

When setting minimum and maximum days of stock, most retailers fail to look at one key factor: product predictability.

The predictability of each product you offer is crucial to maintaining optimum inventory levels because it brings stability to both your supply chain and revenue. With a good grasp of your product predictability, you can invest in a smaller buffer and use that capital to grow and expand into other areas of the business.

In short, the more unpredictable your products, the more buffer you’ll need — and the less cash flow and revenue you’ll have at your disposal.

Not sure how to find your product predictability? You can figure out the level of predictability (or in many cases, unpredictability) by looking at two key areas:

  • Predictability of sales
  • Predictability of supply chain

This will give you a good idea of how easy or difficult it is to align your sales and inventory on a specific SKU. But it’s still only half the story.

Implement risk management strategies to avoid inventory headaches

We hate to say it, but when it comes to inventory there are a lot of sellers who opt for ease over accuracy.

But using inaccurate units, or operating with blanket min/max stock days across your portfolio, can quickly leave you over- or understocked.

The takeaway? Always measure in days, monitor product predictability, and tailor inventory levels to each product for greater accuracy and less risk.

No matter what approach you choose, there are still some variables that could affect stock replenishment. Here are a few pointers to remember:

  • Keep your supplier’s Minimum Order Quantities (MOQs) in mind as these could affect how much you restock. Always negotiate and be willing to look around for better deals.
  • Your cash availability coupled with MOQ requirements can also affect your ability to replenish stock. Ensure you have enough capital to buy upfront or negotiate with your supplier to secure favorable payment terms.
  • Check your shipping costs to assess whether it’s worth slightly overstocking to take advantage of freight discounts.

A smarter way to get the best inventory levels for your store

Traditional inventory management tactics (think: spreadsheets, manual forecasts and applying general buying rules) may be enough to get you going — but they aren’t enough to keep your store efficient and profitable in today’s unpredictable and ultra-competitive market.

To set and keep the right inventory levels, you need a comprehensive strategy that gives you full inventory visibility and automates the manual work, so you can focus on other revenue-generating tasks.

That’s where Flieber comes in, integrating six key dimensions to make inventory optimization a breeze. Let’s take a closer look at each one:

Dimension #1: Accurate Data

The first step to improving inventory levels is to extract raw, accurate data from multiple sources in your supply chain (e.g., your manufacturers, sales channels and warehouses). This information forms the foundation for correct forecasts and decision making, so you want to take the time to get this step right.

While a category-based approach may feel like the easiest way of grouping your product data and setting your buffers, the reality is no two products ever perform identically. Sometimes a white shirt just won’t sell as well as a navy shirt, despite the fact that they’re in the same category. With Flieber, you can leverage AI to execute a clusterization approach that groups products by their sales patterns, before putting them into separate data clusters.

Dimension #2: Intelligence

The ideal inventory optimization platform will also act as a central command center to facilitate quick decision making.

With the right system, you make sure your stock data always reflects your products’ actual sales and supply chain predictability — allowing you to make more accurate forecasts. For example, Flieber allows users to change lead times or forecasts and will automatically adjust the results.

Dimension #3: Analysis

To understand your store’s unique inventory demands, you need a tool to help decipher the possible next steps.

This strategic move uses real-time data and scenario analysis predictions to boost your forecast accuracy so you can confidently make better decisions on when to replenish your stock.

Dimension #4: Decision

Once you’ve got the right sales, inventory and predictability data on your side — it’s time to make better decisions.

But don’t go it alone.

Flieber helps users decide which actions to take next, based on dynamic data that reflects what’s really happening with your sales and inventory. With a little help from machine learning, Flieber provides clear, actionable guidance, so users always know what to do next.

Dimension #5: Execution

You’ve got the right data and decided on a solid course. Now, it’s action time.

Your inventory optimization solution should step up and help you act with speed and precision by providing a centralized hub to act from. Flieber helps users book the right vessel for their current needs by providing information on the top service types and providers, explaining which would be most suitable and why.

Dimension #6: Automation

The final task for ultimate inventory optimization is to utilize AI for repetitive tasks, and get all that grunt work off your plate. Your inventory platform should allow you to set parameters to accelerate task completion, free up time and drive down admin costs.

With Flieber, the user decides to act on Flieber’s recommendation (e.g., a vessel suggestion), clicks the associated button and is taken to the chosen freight forwarder’s portal. Automations then kick in to book the slot based on pre-set rules. Simple.

Keep your inventory levels sharp year-round

As the ecommerce landscape becomes more complex and competitive, how you optimize your inventory levels matters.

Getting a firm grip on stock levels will give your business (and your supply chain) a big boost in efficiency — leaving you free to take on more opportunities.

But to get your inventory levels up to scratch, you’ll need to let go of manual stock management and static stock limits and reach for real inventory optimization.

That’s where the right system makes all the difference.

With an all-in-one inventory optimization tool, you get clarity, peace of mind, and full supply chain visibility so that you can scale without limits.

Ready to uplevel your inventory strategy? Find out how Flieber’s transformative inventory optimization tool raises the bar.

About the author

Fabricio Miranda

Fabricio Miranda is the co-founder and CEO of Flieber. A serial entrepreneur, he has founded or joined as early stage partner seven companies in both Brazil and the United States. Since 2016, he has been fully dedicated to the online retail segment, where he has co-founded four companies, three of them in the technology space.

LinkedIn: https://www.linkedin.com/in/fabriciomiranda




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