Weeks of Supply Formula
Retailers rely on a weeks of supply formula to indicate the ideal quantities of inventory to have on hand. The number of weeks used in calculation will vary according to the stability or flexibility of demand in the individual business. Seasonal highs and lows will cause large variations in weekly inventory quantities; it is wise to use smaller periods of time to calculate for businesses carrying seasonal products.
The weeks of supply calculation is as follows:
Divide the amount of inventory on hand by the average number of units sold each week to determine the weekly supply.
This is an effortless way to apply the weeks of supply formula to your Excel spreadsheet. If you are working with inventory software, like SOS Inventory, no manual calculations are necessary; our software will keep track of the ideal inventory amounts and automate reordering according to the optimal amounts of product you determine necessary to have on hand.
For retailers, the biggest challenge is gathering information about inventory at all locations whether in a store, a warehouse, enroute from a vendor, or in transit to another location. The only way to pool all that information to ensure you are working with accurate figures is with software that can tie in your various locations, purchase order and shipping information. Supply variability depends on lead time consistency; it’s best to be prepared for the worse case scenario.
Considerations for the Retail Weeks of Supply Formula
How often does your demand fluctuate?
If your demand fluctuates frequently, evaluate the retail weeks of supply by a shorter time frame, such as four weeks. For products with more consistent sales figures, longer stretches are suitable. i.e., eight weeks or longer.
Winter boots are a good example of a seasonal product, while paper towels are consistently purchased all year round.
The longer your lead times, the more product you need to keep on hand. If you can shorten lead times by working with alternate vendors, you could potentially reduce the amount of cash flow required to maintain your ideal inventory quantities. In some industries, it is possible to manufacture goods at different stages to keep on hand in case of a shortage. (This is a good strategy for navigating supply chain shortages).
Here is an another example:
| Product | Inventory | Weekly Sales | Weeks of Supply |
|---|---|---|---|
| A | 1000 | 200 | 5 |
| B | 500 | 50 | 10 |
| C | 750 | 150 | 5 |
| D | 2000 | 100 | 20 |
In this table, we have four different products (A, B, C, and D), and for each product, we have listed the current inventory, the weekly sales for that product, and the calculated “weeks of supply” metric.
The “weeks of supply” metric is calculated by dividing the current inventory by the weekly sales. This tells us how many weeks’ worth of inventory we currently have, based on our current rate of sales.
For example, Product A has an inventory of 1000 and sells 200 units per week. Dividing 1000 by 200 gives us 5, so Product A has 5 weeks’ worth of inventory based on its current sales rate. Similarly, Product D has an inventory of 2000 and sells 100 units per week, so it has 20 weeks’ worth of inventory.
The easiest way to maintain ideal quantity levels is to trust your inventory management to SOS Inventory, the software designed to handle every aspect of inventory control from one end of your business to the other. SOS unites data from every location, whether concerning different departments or warehouses, and provides a consistent set of information to anyone accessing the account.
Why not take the guesswork out of inventory planning and let SOS Inventory handle your weeks of supply formula for success?
