Candy retail is more than hoarding the right products and styling your aisles while hoping for the best.
The reality is, it’s also a game of numbers, particularly when it comes to optimising inventory management.
While your focus is to earn more profits, you also shouldn’t lose sight of potential costs and waste that may come in the way.
Mastering the art of knowing when to replenish candy stock, how much to order, or anticipating when you’ll run out of stock, is just as important.
In this article, you’ll find 5 essential formulae to optimise your candy inventory the smart way.
It’s your go-to guide whenever you find yourself knee-deep in inventory calculations!
What Are Inventory Management Formulae?
Keeping track of your inventory goes beyond noting down figures in your journal. Your stock movements can reveal a lot about your in-hand inventory, spillage issues, phantom inventory and wastage, if any.
To make the most of your inventory so that it reaches your customers at the right time without the potential risks of stock-outs, overstocking or damage, calculating inventory in a systematic manner is necessary.
These formulae encapsulate mathematical equations designed to help you maintain optimal inventory levels of wholesale confectionery, aligning with demand while minimising excess or shortage.
Why Evaluating Inventory Is Necessary
If you’re managing your inventory well, you’re two steps ahead in your retail game.
Why? Because knowing the ins and outs of your well inventory — what products are performing, which ones need your attention and what you can do to improve unnecessary stockouts and inventory overflows.
Evaluating your stock levels provides you with essential insights which are necessary to ensure you never run out of products, especially when the demand is high.
Moreover, efficient inventory management also prevents overstocking, which can further avoid unnecessary holding costs and potential wastage.
5 Key Formulas for Inventory Management
Now, let’s explore the top formulas for inventory management that you can use to balance your stock and synchronise operational activities in your store.
a. Inventory Turnover Ratio
The Inventory Turnover Ratio, a fundamental formula in stock management, measures the frequency at which your inventory is sold within a defined period, typically a year.
It’s like anticipating how fast your rainbow lollies fly off the shelves, a critical insight for making informed stocking decisions.
Inventory Turnover Ratio is a crucial tool in inventory management, aiding businesses to optimise stock levels efficiently.
This ratio assesses the frequency with which you sell your inventory and replace it during a specific period.
A higher turnover ratio indicates robust sales and effective inventory management, ensuring that products don’t remain stagnant on your shelves, tying up your capital.
On the other hand, a lower ratio suggests potential overstocking or slow-moving inventory, prompting adjustments in purchasing, production, or marketing strategies.
With this ratio alone, you can streamline operations, improve cash flow, and enhance overall profitability by aligning your inventory levels with consumer demand.
b. Reorder Point Formula
Have you ever noticed how shops appear to mysteriously refill exactly as they run out of an item?
The reorder point formula is the magic wand behind this. This critical inventory management formula assists a corporation in determining the best time to place an order with its suppliers.
It enables a smooth production flow and efficient storage space use.
So, how do you find the reorder point? Here’s how it works:
Consider this: You’re a confectionery retailer and sell the best candy in town. You somehow ascertain that is 1,000 units and that your wholesale confectionery supplier provides you with the same quantity.
You also have 1,000 units on hand in case there’s a sudden candy rush in town. To avoid running out of stock, here’s how yuo can calculate your reorder point:
When your flour stock reaches 5,000 units, it’s time to make a new order with your supplier. This guarantees that you always have enough to keep your ovens warm and your clients satisfied.
Remember to return to this computation on a regular basis. Why? Because it assists the logistics manager in determining the appropriate stock volume for goods acquisition. It’s a fine line to walk between investing in products and avoiding stockouts.
And who wants to inform a swarm of cupcake-hungry customers that you’ve ran out of flour?
c. Economic Order Quantity (EOQ)
Economic Order amount (EOQ), is a critical inventory management technique that helps you determine the ideal order amount to minimise total inventory expenditures.
It’s a fine line to walk when it comes to the tradeoff between setup or ordering expenses and holding or carrying costs.
Using the EOQ method, manufacturing companies may decide how much inventory they should buy in a single transaction to successfully lower their total expenses.
The carrying cost of inventory might range from 20% to 30% of the entire inventory value.
Here’s the economic order quantity formula:
[(2DK)/H] = EOQ
“What do these symbols represent?” you may be wondering.
D is the annual unit demand.
K is ordering costs per order.
H stands for carrying expenses per unit per year.
Let’s look at an example to understand how it works.
Consider the following scenario: you want to buy inventory for a product with a yearly demand of 2,000 units, a procurement cost of $300, and an annual storage cost of $1 per unit. This is how you’ll use the EOQ formula.
So, what’s the point of this? Simply simply, 1095 units is the most cost-effective order size. Isn’t it evident how this formula became such an important tool for inventory management?
d. Safety Stock
Safety stock refers to a reserve of items held at your store. Consider it a safety net for unanticipated events, such as a sudden rise in demand for a single product, unexpected changes in SKU turnover, or supplier delays.
Here’s how you can apply this formula; suppose your store requires 200 units of a product to meet existing customer orders. If the average delivery time for this product is 5 days and the maximum delivery time is 8 days, the safety stock calculation would be:
(8 – 5) 200 = 600 safety stock units
So, why do you have to calculate your safety stock? The major purpose of this key performance indicator (KPI) is to have enough stock in the warehouse or inventory to avoid stockouts.
Stockout take place when you receive orders but are unable to complete them owing to a shortage of inventory. By keeping a safety supply on hand, you may assure a smooth flow of operations even in the
e. Gross Profit Margin
The Gross Profit Margin formula helps ascertain how much revenue you retain after accounting for the cost of goods sold.
In simple words, reveals the profitability of the products sold. But why should you calculate your gross profit margin? The difference between the cost of goods and the revenue generated is what you get to keep.
Which means, the higher your GPM, the more effective inventory management is. It also implies that your products are priced appropriately to cover not just the cost of goods but also contribute to covering other business expenses and generating profit.
Just as Pascall lollies have their unique blend of flavors, each formula plays a distinctive role in refining your inventory management, ensuring a deliciously balanced stock.
This knowledge enables your business to adjust pricing strategies for bulk confectionery, manage inventory levels efficiently, and ensure sustainable profits while maintaining a competitive edge in the market.
It’s Time to Optimise Your Store’s Inventory
Efficiently managing your wholesale confectionery inventory is about finding that perfect symphony of flavors and colours—the precise blend of rainbow lollies and gummy treats that keep your customers coming back for more.
Just as every confectionery piece has its place and purpose, so does each inventory management formula.
Utilising these inventory management formulae sets the stage for a smooth, delightful shopping experience in your store.
And if you’re on the lookout for the best stuff, Stock4Shops is here! As a leading bulk confectionery supplier in New Zealand, we curate only the best products for your store.
Get discounted prices on wholesale confectionery and other products in home, cleaning, health, beauty and more. Shop now and balance your inventory like a Pro!
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