How to Forecast Your Safety Stock With Nanogram Accuracy

People want to get rich, but don’t know how.

Some others know opening an ecommerce store can make them rich.

But, they don’t know how to open one.

Few others, know how to open an online store, but know nothing about inventory.

We like the third kind of people. No! We love everyone. But in this article we are going to show some extra love for those have taken some actions to bring their dreams to shape.

We are going to tell confused store owners how to chart out in detail their stock control requirements for target-crushing business volumes. Because we want you to go out and win that market that is still under-served and open for exploitation.

Buy Stock Beforehand: Worst Way of Doing an eCommerce Business

Safety stock levels

Isn’t that intriguing? Something interesting is happening out there.

Ecommerce businesses are not owning anything that they are dealing in.

And so should you.

Drop Shipping: The Success Mantra of Successful eCommerce Stores

Drop shipping is the perfect to kickstart your ecommerce store into action without having to worry over inventory management and shipping. In fact, it is the preferred mode of order fulfillment for more than 33% of the e-retailers.

drop shipping

Amazon, Zappos, Sears, Wayfair, etc. are some of the early adopters of drop shipping. And the kind of profits they have raked in through it is mind-boggling.

Why do we suggest dropshipping for your online business?

Because:

  • It does not lock in working capital in inventory

  • It eliminates associated inventory costs like warehousing, ordering, staffing, etc.

  • It gives flexibility to scale operations at will

  • No necessity to hoard stocks during off-seasons And

  • It is profitable!

Ok, understood you are getting impatient.

Here is how to calculate safety stock for inventory requirement in absolute terms:

Let us assume you have a monthly sales target (or if lucky even actual turnover) of $150,000.

To achieve that sales, you will have to sell:

  • 1,500 units @ $100, or

  • 750 units @ $200, or

  • $375 units @ $400, or

  • $250 units @ 600, or

  • [fill units] @ [fill price] of your choice.

In addition, you will also have to carry some safety stock in order to meet some unexpected orders or other exigencies like customer returns, defectives, delayed production, etc.

safety stock calculation

Now that you have an example of safety stock calculation for a month, it is time to sign that deal with your supplier for direct shipping to customers.

Also read : 5 Inventory management metrics that matter the most.

Drop shipping will backfire if you do not follow these mistakes:

  • Not establishing quality standards with suppliers

  • Failing to automate the shipping cost calculation for different suppliers

  • Not having alternate logistic partners in case of urgent requirements

There is an old joke in the garment industry – ‘One-size-fits-all’.

Ecommerce inventory management is also like that. One solution does not fit all.
Each store has its own stock requirements that need to be addressed individually. With omnichannel sales volumes touching new heights, a complete solution to manage your stock from a single point is a necessity.

Safety Stock

Safety Stock Calculation

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