The inventory-to-sales ratio is also called the inventory-to-sales ratio, which refers to the ratio of the average inventory quantity to the sales volume in a certain period of time. It is mainly used to evaluate the overall situation of the product’s immediate inventory. The calculation formula is:
Inventory-to-sales ratio = [(beginning inventory + ending inventory)/2]/sales quantity x 100%
As can be seen from the formula, the meaning of this formula is how many cycles the store’s current inventory can continue to maintain when the sales volume of the next cycle remains unchanged, even if there is no new purchase to replenish the existing inventory. If the store’s products are special and the sales price range exceeds US$50, then the inventory amount and sales can be compared to obtain more accurate information.
The inventory-to-sales ratio can be used as an inventory warning indicator, which can help sellers control product inventory in a timely manner during daily sales and purchases. Taking the clothing category as an example, its inventory-to-sales ratio is generally calculated in months, with a reference value of 3.0~4.0. When the inventory-to-sales ratio is higher than the reference standard, it means that the inventory quantity is too low or the inventory structure is not reasonable, and out-of-stock situations are likely to occur: when the inventory-to-sales ratio is lower than the reference standard, it means that the inventory quantity is too high, the product is facing the risk of unsalable, or there are inadequate operations in the recent period. Therefore, the inventory-to-sales ratio can also be used to assess the actual sales of a single product.
Compared with the sell-out rate indicator, the inventory-to-sales ratio takes into account the actual sales situation more flexibly. In view of the characteristics of the Amazon platform, when counting the inventory at the beginning and end of the period, it is also necessary to calculate the total inventory and the FBA inventory quantity respectively, so as to obtain the product inventory-to-sales ratio and FBA inventory-to-sales ratio. Two values, and use this to manage inventory more accurately, ultimately avoiding excessive inventory during the recession period.
Note: With the help of the product life cycle theory, operators can better understand the sales of Amazon links, so as to take more targeted and refined operational measures at different nodes. However, this model only considers two factors, sales volume and time. In actual operation, if there is no rich experience in the category, it is difficult to divide the starting and ending points of the four stages, which is also its limitation.
For operations, the product life cycle theory provides a set of solutions to the problem, but it is not a panacea. Different products and categories often require more flexible operations. This requires operations to break the mindset and conduct refined operations based on the actual situation of the link.