Inventory Management System

Overview

This skill provides systematic approaches to inventory optimization, demand forecasting, and supply chain management for e-commerce and retail businesses.

Key Metrics

Stock Level Metrics

Metric	Formula	Target
Days of Supply	Current Inventory / Daily Sales Rate	14-45 days
Stock Turn	COGS / Average Inventory	4-12x annually
Fill Rate	Orders Fulfilled / Total Orders	> 95%
Stockout Rate	Stockout Days / Total Days	< 2%

Calculations:

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Days of Supply = Current Inventory Units / Average Daily Sales
Stock Turn = Annual COGS / Average Inventory Value
Fill Rate = (Orders Shipped Complete) / (Total Orders) × 100
Stockout Rate = (Days with Zero Stock) / (Total Days) × 100

Reorder Calculations

Reorder Point Formula:

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Reorder Point = (Lead Time × Daily Sales) + Safety Stock

Example:
- Lead time: 14 days
- Daily sales: 50 units
- Safety stock: 200 units
- Reorder Point = (14 × 50) + 200 = 900 units

Safety Stock Formula:

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Safety Stock = Z × σd × √L

Where:
Z = Service level factor (1.65 for 95%, 2.33 for 99%)
σd = Standard deviation of daily demand
L = Lead time in days

Economic Order Quantity (EOQ):

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EOQ = √[(2 × D × S) / H]

Where:
D = Annual demand
S = Order cost per order
H = Holding cost per unit per year

Alert Thresholds

Status	Days of Supply	Action Required
Critical	< 7 days	Immediate reorder, expedite
Low	7-14 days	Place reorder now
Normal	14-45 days	Monitor, scheduled reorder
Excess	> 45 days	Evaluate markdown/transfer
Dead Stock	> 90 days, zero sales	Liquidate or dispose

Inventory Actions

Low Stock Response

Immediate Actions:

•Check supplier lead times and capacity
•Evaluate expedited shipping costs vs. stockout cost
•Identify substitute products to recommend
•Update availability display on storefront
•Pause marketing campaigns driving demand

Reorder Decision Matrix:

Scenario	Standard Order	Expedited Order
Lead time < stockout	Yes	No
Lead time > stockout	No	Evaluate cost
High margin product	Consider	Yes
Low margin product	Yes	No

Excess Stock Response

Evaluation Steps:

•
Analyze why stock became excess
- •Demand drop
- •Forecast error
- •Cancelled orders
- •Seasonal mismatch
•
Markdown Strategy:

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Markdown % = (Holding Cost × Projected Days) / Unit Cost

If Markdown % > 30%: Consider liquidation
If Markdown % 10-30%: Promotional pricing
If Markdown % < 10%: Price optimization

•
Alternative Actions:
- •Warehouse transfer to higher-demand location
- •Bundle with fast-moving items
- •B2B wholesale channel
- •Donation (tax benefit calculation)

Dead Stock Management

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Dead Stock Cost = Units × (Holding Cost + Opportunity Cost)
Liquidation Value = Units × (Salvage Price - Liquidation Cost)

Decision: Liquidate if Liquidation Value > 0 or Dead Stock Cost/month > Liquidation Cost

Demand Forecasting

Methods

Method	Best For	Accuracy
Moving Average	Stable demand	Medium
Exponential Smoothing	Trending demand	Medium-High
ARIMA	Seasonal patterns	High
ML/AI	Complex patterns	Highest

Simple Forecasting Formula

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Forecast = (α × Recent Sales) + ((1-α) × Previous Forecast)

Where α = 0.2 to 0.5 (smoothing factor)
Higher α = More responsive to recent changes

Seasonality Adjustment

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Seasonal Index = Period Sales / Average Period Sales

Adjusted Forecast = Base Forecast × Seasonal Index

Example (Q4 Holiday Season):
- Base forecast: 1,000 units
- Q4 Index: 1.8
- Adjusted forecast: 1,800 units

Multi-Warehouse Management

Allocation Strategy

Factor	Weight	Consideration
Regional demand	40%	Historical sales by region
Lead time to customers	25%	Shipping speed goals
Warehouse capacity	20%	Available space
Cost	15%	Storage and shipping costs

Transfer Decision

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Transfer if:
1. Source warehouse: Days of Supply > 60
2. Destination warehouse: Days of Supply < 14
3. Transfer cost < (Stockout cost × Stockout probability)

Reporting Templates

Daily Inventory Report

SKU	Current Stock	Days Supply	Status	Action

Weekly Performance Report

Metric	This Week	Last Week	Trend
Fill Rate
Stockout %
Avg Days Supply
Inventory Value
Stock Turn (Ann.)

Monthly Analysis

•Top 10 fast-moving SKUs
•Top 10 slow-moving SKUs
•Forecast vs. actual variance analysis
•Supplier performance scorecard
•Dead stock report
•Inventory valuation changes

Integration Points

•ERP: Real-time stock levels
•POS: Sales velocity data
•WMS: Warehouse capacity
•TMS: Lead time updates
•Supplier Portal: Order status
•E-commerce Platform: Availability sync