How Much of My Inventory Should Be On Hand Vs In Storage?

Managing retail requires a degree of forward-thinking and accounting skills because retailers need to sell as many products as possible. To do this, a retailer needs to know how much inventory to hold in stock when to order a new batch, when to set up promos, and all that without having to cut prices or throw away expired goods. 

There has to be a delicate balance as a result of the ever-changing nature of the market. By managing your inventory to sell out instead of having the leftover items take up your storage space.  There is no magic formula for knowing how much your inventory should be, but one standard practice is to have 2 to 3 months of standard stock on hand and an additional 3 months of safety stock.

In this blog, we will discuss determining the right amount of inventory to keep on hand versus storing it for later use and how Xpressman Trucking & Courier can help with our professional warehouse and distribution services in Massachusetts.

Importance of Having Inventory

To find the optimal balance for inventory, you have to manage your investment. Too much inventory will tie down your resources and reduce your storage capacity, and having too little means you miss sales opportunities and risk losing customers. Determining which product to hold or keep in storage requires you to have information on the demand for the product, expiration, and the degree of supply. Here are some of the effects of an imbalance in inventory management:

• Out of Stock: This means you do not have enough and cannot meet your customer’s demands. This means missed sales and potential new customers, equating to a loss. To avoid this, you need to look at your location, sales history, and demand for your product to know how much of it needs to be kept in stock.
• Availability of Surplus: While having extra stock on hand might seem like a good thing, it can seriously backfire. This is because this creates surplus, and surplus reduces demand and hence forces the retailer to cut prices or get rid of old stock.

To avoid situations like this, you can take two routes: the Top-down approach and the bottom-up approach. The Top-down approach looks at the larger market and competitive landscape to forecast future demand and supply. By knowing macroeconomic trends and the actions of your competitors, you can then decide whether to reduce incoming stock or increase it. 

On the other hand, the bottom-up approach requires you to assess historical sales and inventory performance in each and every nook and cranny of your business to predict seasonal demand for the product.

How To Determine How Much Inventory Carry

These are some reasons as to why a retailer should hold inventory:

1. Storage Space and Shelf Life

The amount of available storage and the product’s shelf life are, without a doubt, the most important factors you need to consider when determining inventory. A product with a short shelf life should only kept on hand and should be in storage. Also, a seasonal product only needs to be in stock during that season.

2. Cash Flow

A retailer’s cash flow also determines how much of a product they will demand from the supplier. Simply put, a negative cash flow might indicate you are not selling enough of what you purchase or are not selling it at a profit.

3. Average Week of Supply

This refers to the amount of that product supplied to you per week. You might need to change this if it doesn’t match your demand. 

4. Sales Forecast

This requires both the top-down and bottom-up approach to look at macroeconomic trends and the sales history of your business and competitors to determine whether you need more stock.

5. Volume of Orders

Another thing to look out for is the number of products you can sell and determine if you will buy it in bulk or batch. While bulk orders might reduce transportation costs, they also run a risk of remaining as surplus. For non-perishable goods, this is still a tenable buy. Ordering perishable goods like fish and meat in batches might be a better idea.

Get a Free Quote on Commercial Warehousing, Distribution, & Logistics Management Services in Massachusetts with Xpressman Trucking & Courier

At Xpressman Trucking & Courier, we offer a variety of professional warehousing, distribution, and logistics management services to help your business run smoothly. We use the latest technology and have a team of experienced professionals to ensure that your products are stored, transported, and delivered efficiently. Additionally, track your shipments and monitor your inventory in real time with our online client portal. When you need to move your products quickly and reliably, trust Xpressman Trucking & Courier to get the job done. To learn more and get a free quote, submit an online estimate request or call us at 781-836-4614.