When placing orders with suppliers inside Inventory Manager, it’s essential to track two things:
- Lead Time. How long will it take for this order to be manufactured and delivered? This estimation should account for manufacturing, freight, customs, delivery to the warehouse, and processing times.
- Reorder Frequency. How long do I want this order to last between receiving the order and placing the next order?
Inventory Manager uses both of these numbers, as well as your Amazon reported sales velocity, to make recommendations on when to place orders, and how many units to order. Ensuring accuracy of these values is extremely important, as they are vital to Inventory Manager’s automated Restock and Transfer Recommendations.
Let’s review an example.
Let’s say you sell SKU-123. SKU-123 generally sells at 10 units per day, and you currently have 1,000 units in stock, which you expect to last 100 days.
You calculate that it will take 30 days for your supplier to manufacture and deliver new inventory to Amazon before it is available for purchase.
To reduce the number of orders you must place to keep SKU-123 in stock, while still minimizing storage fees with Amazon, let’s say you want your inventory to last 90 days each time you place an order.
Using this scenario, it suggests you’ll need to reorder when you get down to 300 units in stock.
- Lead Time = 30 Days
- Sales Velocity = 10/Day
- 30 x 10 = 300 Units
Given your current sales velocity, you will need to place an order in 70 days.
- Current Inventory = 1,000
- Units Left when Order Required = 300
- 1,000 - 300 = 700
700/10 (Sales Velocity) = 70 Days
So let’s fast forward in time. You have waited 69 days and currently have 310 units in stock. It’s time to place a new order. How much should you order?
Given that your Reorder Frequency is every 90 days, and you sell 10 units per day, you should order at least 900 Units. However, Inventory Manager will also account for your Lead Time of 30 days (30 x 10 = 300), adding it to the total reorder number, so that you do not run out of stock during the subsequent reorder period.
In this example, Inventory Manager will recommend that you order 1,200 Units. The current 300 units in stock will cover sales while you wait for the manufacturer to fulfill the following order. Seven hundred units will sell over the course of the next 90 days, and the additional 300 units will carry you through the subsequent reorder period, while you wait for the next order to get delivered.