On Hand Inventory
[noun]
With ‘on hand inventory’ is generally intended the amount of stock items available to a retail outlet or eCommerce website, ready to be immediately sold or used by consumers. This numeric integer typically includes finished goods, but can comprise raw materials that go into the production of the finished good (called work-in-progress or WIP’s) as well.
As strategy work is heavily data-centric, on hand inventory is often one of the key metrics behind the foundation work of our broader neta growth process, and a crucial aspect we would factor within a website re-platforming to optimize its performance on hand inventory and inventory turns in general reflect the health of an eCommerce channel’s ability to meet sales demand and ultimately financial projections.
On Hand Vs Forecasted Inventory
On Hand Inventory
On hand defines the quantity on hand, physically present in the warehouse of an eCommerce or digi-physical business. Applied to a single product or item, this would help identify average days in inventory and marketability of some products vs others: the lower the average number of days in inventory, the more market friendly a product would in fact be.
Forecasted Inventory
Forecasted is a # representing future or virtual stock availability of a product, thus allowing for sales-planning based on actual availability. This figure is calculated through the following formula: on hand inventory – outgoing + incoming. If forecasted stock is smaller than on hand stock, certain products might become reserved for specific types of sales/clients or only available for pre-orders.
The on hand inventory figure is normally calculated by subtracting any items that have already been “picked” in a sales order to the total a brand or company has physically available on their warehouse shelves. If a retail business does not actually want to count all of its inventory again, the quantity of inventory on hand can be computed by taking the amount of stock previously observed and then including any subsequent stock addition and subtracting sales or other stock disposals.
Oftentimes, the concept of on hand inventory is linked to that of ‘weeks on hand’ which is just another way of expressing the average days or # of weeks as an inventory rate, a ratio that measures the average # of weeks an item is held within an inventory. Since inventory cost represents the opportunity cost of revenues, this ratio indicates how well inventory is being managed, and is one of the key elements we would use in determining the operating cycle of a company.
As a consequence of this, when defining a marketing and acquisition strategy for one of our neta clients, besides costs we would also look at inventory turns or inventory turnovers, a ratio showing how many times a company has sold and replaced inventory during a pre-defined amount of days/weeks/months. Moreover, given neta’s CAGR and net income focused approach, for us it is paramount that all inventories numbers, are managed efficiently to yield the highest margins possible.
In our experience, P&L and balance sheet analysis is often the best way to start when working on on hand inventory and projections. In fact, inventory is usually one of the biggest costs and largest asset or liability on a product/retail company’s Balance Sheet. Based on this fiscally sound discipline and as part of our a-to-z suite of services, we would apply a number of performance management practices to those companies that have gained traction in the market, requiring focus, stability and prioritization, and a rigorous review of inventory management as part of our strategic growth plan.
This would ultimately allow us to ensure accounting practices, inventory turnover and forecasting are ‘sharp’ and in order, ready to afford the highest gross profit margins and to generate ROI that goes above and beyond our clients’ expectations: +37% of average growth in conversion within 12 month of strategic planning and a 3-year CAGR.
