Optimize your stock with targeted purchasing

To make your webshop profitable and scalable, it is essential to keep your inventory at a healthy level. Too much stock harms your cash flow, and too little stock means missing out on potential revenue.

To strike the right balance, it is important to know how to purchase strategically. In this blog, we’ll explain how to do that and what to pay attention to.

Prevent low stock and missed sales

A product might be in high demand, but if it is often sold out, you miss out on sales and the opportunity to gain loyal customers. Over time, this can become quite costly.

Here are some common reasons a product is out of stock:

• Inventory levels in your system do not match reality
• You are purchasing too little
• Manual processes like analyzing purchasing data are slowing you down
• Incorrect estimations of supplier lead times
• Seasonal or trend-based influences are not taken into account

If products are regularly sold out, it is a good idea to dive into these areas to prevent missed sales in the future.

Avoid excess inventory

The other extreme is over-purchasing every product. This increases the risk of holding unsellable stock in the long run. Too much inventory ties up cash and limits your growth. It also takes up valuable warehouse space.

To determine the ideal stock level per product, conduct a product-level analysis. Key aspects to consider:

• The average inventory value of a product. Calculate this over a longer period (e.g. the last 3 months) and compare it to the product's revenue.
• The cost of holding stock. Consider storage space, interest, risk, and more.
• The inventory turnover rate. This is the average amount of time products remain in your warehouse. Calculate it by dividing your inventory by the cost of goods sold, and multiply by 365. Example: (300 products / €9,900 cost of goods sold) × 365 days = 11.06 days turnover time.
• The lead time from your supplier. Faster delivery allows for a lower turnover rate.

With these insights, you can determine the optimal order quantity and frequency for each product. Avoid ordering too frequently, as it increases the number of repetitive tasks like receiving and preparing orders. Try to find the ideal balance.

Dead stock

Dead stock refers to items that have been in your warehouse for a long time and are unlikely to be sold. This often happens when too much has been purchased, or when trends shift and a product loses popularity.

Dead stock takes up valuable space, so it is a good idea to clean out your warehouse regularly. To prevent this in the first place, be more critical about purchase quantities. Conduct trend analysis before ordering and discuss with your suppliers if you can lower minimum order quantities.

Focus on your bestsellers

The products you sell most frequently offer the greatest impact. Since you sell and purchase them more often, you also have more data to make informed decisions. To identify your bestsellers, run an ABC analysis.

Categorize your products as follows:

• Category A includes the top 5% of best-selling products
• Category B includes the next 15%
• Category C includes the remaining 80%

Start your in-depth analysis with Category A. Once that’s under control, move on to Category B, then C. Ensure you never run out of stock for Category A items, and avoid overstocking items in Category C.

Improve collaboration with your suppliers

In the purchasing process, you rely heavily on your suppliers. A strong working relationship is essential. Make sure expectations are clear and communication is consistent.

You can also assess supplier performance. How reliable are their deliveries? What are the average lead times? What are the minimum order quantities? These are important metrics to analyze and compare across suppliers.

If performance is lacking, consider discussing improvements or switching to another supplier for certain products.

Automate purchasing with tools

You can manually analyze these factors every once in a while, but using software is much more efficient. With purchasing suggestions in Picqer, you can automate many of these processes. We also offer an integration with Optiply for even more advanced purchasing strategies.

Work with your team to assign responsibilities for specific areas, and start optimizing your stock through smarter purchasing.