Zorp launches Forms SDK ūüöÄ You can integrate dynamic forms into your existing mobile apps with just a few lines of code.
Learn More
Fundamentals
October 27, 2023

SafetyStock 101: Managing Inventory Levels for Ecommerce

Fundamentals
October 27, 2023

SafetyStock 101: Managing Inventory Levels for Ecommerce

Contributors
Bala Panneerselvam
Co-founder
Subscribe to our newsletter
Read about our privacy policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

‚ÄúOutof Stock‚ÄĚ! is probably one of the worst things you can have as a ecommercebusiness. There‚Äôs customer demand but you can‚Äôt serve. This is lost money onthe table. With over 25 years of ecommerce history, stock is still fairlycommon even among large businesses.

In this post, we will talk about setting up the right safety stock for your e-commerce business. We will cover,

-      How to structure your existing Inventory data

-      How to calculate Safety stock level based on your sales

-      How to get alerted when the safety stock hits

-      Understanding your procurement timelines

-      Process to follow when the Safety Stock level is hit.

What is Safety Stock?

Safety stock refers to the extra inventory you keep on hand to act as a buffer against stock outs during uncertainties in supply and demand.Safety stock helps you meet customer demand even when your sales unexpectedly spike or there are supplier delays. The goal of maintaining safety stock is to achieve a desired service level - the percentage of time you can immediately fill an order from stock on hand.

In simple terms,

Safety stock = Avg no of inventory items to be sold before Procured products reach your warehouse.

Structuring Your Existing Inventory Data

Your safety stock depends on your sale velocity. So, you need to have a clear idea of how much you’re selling. You need the following data points for each inventory item to correctly identify Safety Stock.

1.   No of items sold in a day

2.   Avg time taken for PO Placement

3.   Avg time taken for PO Acceptance

4.   Avg time taken for PO delivery

Here’s a simple formula to calculate this:

Safety Stock Level for Inventory (I) = (PO Placement days + PO Acceptance days + PO Delivery days) * Items sold in a day

Here’s a live calculator where you can upload these data points to get the required result.

www.zorp.one/tools/safety-stock-calculator

Setting Safety Stock Alerts

You may not always know when your safety stock is getting hit. And going through a report every day is very sub optimal. Proactively monitoring your inventory and setting alerts can help ensure you don't run out of key products. Here are some tips for monitoring safety stock:

·      Use a Monitoring solution to proactively monitor for Safety stock hits

·      Build a simple dashboard to view daily inventory levels and flag low stock items that have fallen below safety stock.

·      Set alerts for when lead times increase from suppliers so you can act before safety stock is depleted.

·      Alert the purchasing/sourcing team when safety stock needs replenishment so they can take action.

Actions to Take When Safety Stock is Hit

Even with close monitoring, your inventory will occasionally dip below target safety stock levels. Here are some actions to quickly respond:

·      Rush order from the supplier to replenish stock if lead timeallows.

·      If lead time is too long, source from a secondary supplier even at a premium price.

·      Temporarily stop promotions or ads on the low stock item to minimize further sales.

·      Offer alternative bundle deals or substitutions for the out of stock product.

·      Communicate order delays or stock outs immediately and offer customers backorders or rain checks.

Proactively managing and monitoring your safety stock is crucial for maintaining high service levels and avoiding costly stock outs. Adjusting safety stock levels based on demand changes will improve your inventory performance over time. With some care and attention, safety stock can help your e-commerce business smoothly meet customer expectations.

Optimize Your E-commerce Inventory with ZORP

Discover how to prevent stockouts and boost profits with effective safety stock management

Latest blog posts

Managing Millions of Inventory items in ECommerce

Explore how an ecommerce business can manage millions of inventory items in their inventory. Understand Just in Time inventory.
Bala Panneerselvam
November 29, 2023

What is Inventory Holding Cost? Why is it important for your business's profitability

In a fast moving business, Inventory Holding Cost can be the magical element that determines your profitability. Click to learn how.
Bala Panneerselvam
November 24, 2023

Just In Time Inventory: Optimizing Your Ecommerce Operations

Discover JIT inventory's power for ecommerce! Strike the right balance, reduce costs, and boost efficiency with Zorp
Bala Panneerselvam
November 5, 2023