Anticipation of demand is essential for retailers to accurately forecast 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 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 catego.
