As a wholesaler, you’re dealing with large volumes of stock. However, not all wholesalers understand how to effectively manage their inventory, which often results in too much or too little stock. You’ll want to avoid overstocking and running out of stock as much as possible, as this affects costs and revenue.
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That said, you still need to meet your customer objectives while factoring in business profitability, and that’s where inventory forecasting comes into play. Effective inventory forecasting means that you have the right quantity of goods to order, and also the right amount of products in your inventory to meet customer demand.
One of the biggest problems for wholesalers is inventory management. As a wholesaler, you need to monitor stock levels across many SKUs accurately, while still fulfilling customer orders and keeping inventory costs low. The most efficient way to achieve all this is with inventory forecasts.
When it comes to inventory forecasting methods, you can look into using formulas like the reorder point and economic order quantity to manage your forecasts, and then strike the best balance possible between customer demand and inventory costs.
Lead time is the period between ordering stock and when that stock arrives at your storage facility. Regardless of what inventory forecasting software you use, it’s essential that you know your lead time and how much inventory is needed to cover customer demand in the span of time it takes for a new shipment to arrive.When you fail to estimate the level of lead time and demand accurately, it can result in inventory shortages or excesses. Running out of stock results in lost revenue, as dissatisfied customers may look to your competitors for the same product you couldn’t provide at that time. Overestimating the lead time can also be a problem, as it will leave you with too much stock and insufficient storage space.
The reorder point is likely to be different for every piece of inventory, as some items are more popular than others. By setting your reorder point, you’ll know when you need to purchase more items to replenish sold inventory. Ideally, your reorder point should cover your lead time demand and your supplier should deliver a fresh shipment just as you sell the last of your available inventory. By multiplying your average daily unit sales, delivery lead time and safety stock, you can calculate your reorder point. The goal of setting your reorder point is to ensure you have just the right amount of inventory on hand to satisfy your clients. Without knowing your reorder point, you can find yourself stuck with excess stock or insufficient inventory to meet customer demand.
Carrying cost is the expense you incur when holding inventory. From handling to storing inventory in your warehouse, you need to pay attention to the extra cost to maintain your goods. To calculate your carrying costs, you add any money tied up in the inventory, such as capital, insurance, taxes, the rent on your storage facility, along with obsolescence and recovery costs.The cost will vary depending on the size of your company. That said, good management of carrying costs can make the difference between a thriving and failing business. You can start by ensuring you remove dead stock regularly and either better utilizing this space by stocking more bestsellers or scaling down on the size of your storage facility.
For wholesale businesses that deal with large volumes of products, inventory forecasting helps them to balance customer demands and carrying costs. In order to maximize your efficiency and profitability, you’ll need to know their lead time demand, reorder points, and carrying costs. By tracking these numbers, you’ll be better prepared to anticipate customer demand, reducing the likelihood of being stuck with too much or too little stock on hand.