By calculating weeks of supply (WOS), you can minimize stockouts, reduce spoilage, and optimize inventory plans – all of which improve your bottom line.
Picture this: Your inventory levels are running dangerously low. You reordered the right amount of inventory, and that shipment is supposedly on its way. But you're not sure it'll arrive in time to avoid a stockout. And the waiting is turning you into a big bundle of nerves.
That's where calculating weeks of supply comes in. Here’s how it works.
What is weeks of supply (WOS)?
Weeks of supply (WOS) is an inventory management metric that estimates the number of weeks you'll stay in stock based on your current inventory levels and historical demand. This calculation factors in available safety stock and ignores incoming inventory replenishments.
Ecommerce retailers can use their WOS calculation to avoid stockouts – without tying up too much working capital or racking up holding costs. How? By reordering more inventory at exactly the right time, so you can keep only enough stock on hand to satisfy demand.
Ideally, your weeks of supply will equal or be slightly more than your average order lead time. For instance, if it typically takes 5 weeks for purchase orders (POs) to arrive, roughly 6 weeks of supply will satisfy demand until that replenishment comes.
Why it is important to accurately calculate weeks of supply
Accurately calculating your weeks of supply empowers retailers to optimize their inventory levels, minimize stockouts, reduce spoilage, and more.
Optimize inventory levels for different products
Not every product in your inventory is created equal. Your bestsellers likely sell consistently throughout the year. Meanwhile, demand for seasonal products (like bathing suits or holiday lights) might spike in certain months.
By considering both seasonal forecasts and weeks of supply, you can maintain optimal inventory levels for each product at all times. That's because you'll know how much to reorder and when to meet demand. All while preventing excess inventory.
Minimize stockouts and backorders
Consumers now have an unprecedented amount of choices when shopping online. The retailers that stand out are the ones that are always in stock when those customers are looking to buy.
Knowing how long your current supply will last, you can stock in time to prevent a stockout (and avoid having to sell on backorder). This not only reduces friction in the buying process but increases the likelihood that customers will keep coming back for more.
No one wants to pay hefty holding costs for stale inventory or write off perfectly good product at the end of an accounting period. But when you over-order, you end up with spoilage, and that’s what happens.
It's impossible to eliminate spoilage entirely. But an accurate WOS calculation can create a more efficient ordering system. One that reduces the time products sit on warehouse shelves before reaching customers and lowers your risk of dead stock.
Improve future inventory planning
DTC brands thriving in today's online retail environment are no strangers to inventory planning. At any given time, you need to know how much inventory you'll need based on current sales trends. But this also means knowing what you'll need and when.
Enter weeks of supply.
Without calculating WOS, brands can't proactively plan for their future inventory needs. This leaves them placing production orders at a bad time, for the wrong products, or with the incorrect quantities. And it puts brands at greater risk of running out of stock (under-ordering) or accumulating obsolete inventory (over-ordering).
Reduce supplier lead times
Waiting for inventory to arrive is frustrating – not to mention stressful as you get closer to going out of stock. By calculating your weeks of supply, companies can reduce supplier lead times by placing smaller orders more frequently.
For one, this strategy radically reduces supplier order lead times (because smaller orders are typically quicker to produce and fulfill). But as an added bonus, it ties up less working capital in inventory you don't have on hand yet.
Just be sure your orders aren't smaller than your supplier's minimum order quantity. Or, if you need them to be, that you negotiate vendor contract terms that allow for this.
Bring down operational costs
Increased operational costs hurt your bottom line. Luckily, accurate WOS calculations mean you can maintain proper inventory levels because you always know the number of days before you stock out.
Plus, you can avoid supply chain issues by proactively placing purchase orders – compared to waiting until you're (almost) sold out to reorder.
Both these benefits reduce the overhead costs (and logistical headaches) that come with inefficient inventory procurement.
Establish stronger relationships with customers
Which brand do you shop at: The one that always has what you need or the one that's probably sold out? Trick question, right?
Your customers feel the same way. Typically, consumers opt for shops that reliably have the SKUs they want when they want them. Calculating your weeks of supply can make sure that's your DTC brand!
That's because, as you already know, the WOS calculation ensures you replenish inventory before you run out. Meaning, you always have whatever your customer wants in stock.
2 formulas to calculate weeks of supply
There are 2 main ways to calculate weeks of supply: with historical consumer demand with the WOS formula or projected future consumer demand in the FWOS formula. Here's how to use both.
Weeks of supply formula
The weeks of supply formula uses historical demand to calculate when retailers will sell out of a specific SKU.
To calculate weeks of supply, use the following formula:
weeks of supply = on hand inventory/ average weekly units sold
For example, say you sell coffee beans. You currently have 300 of your best-selling roast on hand and no orders on the way. Historically, you sell roughly 60 units each week.
weeks of supply = 300 units on hand/ 60 weekly units sold = 5
According to the WOS formula, your current inventory will last approximately 5 weeks.
✍️ Note: The weeks of supply formula assumes that future sales will reflect past sales and doesn't consider your brand's growth or spikes in demand. That said, it is great for steady selling SKUs that don't experience seasonal fluctuations.
Forward weeks of supply (FWOS) formula
Unlike weeks of supply which uses historical demand, the forward weeks of supply formula uses forecasted demand to calculate when retailers will sell out of a specific SKU.
To calculate forward weeks of supply, use the following formula:
forward weeks of supply = on hand inventory/ average forecasted weekly sales
✍️ Note: The forward weeks of supply formula tends to more accurately estimate when you will sell through your current inventory because it considers seasonality and business growth.
Let's go back to the coffee example above. But this time, let's calculate the roast's forward weeks of supply.
You still have 300 units on hand and no replenishment on the way. But you have an upcoming promotional markdown that expects to increase weekly sales to 100 units sold per week.
forward weeks of supply = 300 units on hand/ 100 forecasted weekly sales = 3
According to the FWOS formula, you have 3 weeks to replenish before this roast sells out.
Limitations of the weekly supply calculation
Weeks of supply calculations are super useful for established small businesses and retail brands. But because the formula only considers a few data points, it has limitations like only looking at past trends, not accounting for viral growth, and more.
Often depends on insufficient data
WOS is a simple inventory management KPI for evaluating your inventory's health because you only need to know current inventory levels and past demand calculations.
While this makes the math easier, it also makes WOS a less accurate forecasting tool. Why? Because it doesn't consider all the real-world factors that affect demand, like DTC trends, raw material shortages, and so on.
Only looks at past trends
Social media like TikTok can change demand the demand for your product overnight. And those changes won't be projected in your past sales trends. So, when this happens, your weeks of supply calculation becomes inaccurate and unreliable.
That's where the forward weeks of supply calculation comes in handy. FWOS considers how long your inventory will last based on the average forecasted weekly sales.
But you can adjust this forward forecast using a tool like Cogsy that accounts for unexpected spikes in demand (like a new consumer trend or a viral post). That way, you get a more accurate representation of how long your current inventory will last and your replenishment needs.
Doesn't account for viral growth
Having a post go viral is the goal, no? Pretty much any marketer would agree. But on the operations side of the business, a viral post can cause serious logistical challenges – especially for smaller DTC brands with limited financial resources.
In this scenario, WOS simply doesn't work. Why? Because a viral post typically means spikes in demand that aren't represented in past trends. And because you can't exactly plan for virality (if you can, congrats on cracking the code), it's also not represented in your forecasts, which could be used for FWOS.
Depends on the quality of your data
You've probably heard the phrase "garbage in, garbage out." But in retail operations, it's true.
If your company relies on flawed or compromised data in your calculations, your outputted insights won't be all that, well, insightful. This applies not only to WOS calculation but all your inventory management KPIs.
Doesn’t consider seasonal promotions
From doorbusters on Cyber Monday to seasonal promotions, DTC brands know how to use marketing events to increase demand. But not every promotion performs the same.
Meaning, you can (and should) use historical sales data to gauge how long your current inventory will last during a marketing promotion. However, depending on how much your brand has grown since that last promotion, it might not be entirely accurate.
Instead, it's smarter to use Cogsy's marketing events feature. With it, you can calculate upcoming marketing tactics proactively into your operational plans to ensure those initiatives lead to revenue growth. And you can do it much more reliably than the reactive WOS formula.
Fails to account for changes in demand changes
Everyone, especially online retailers, was caught off-guard during the panic buying stage of the pandemic. Essential supplies flew off shelves at record levels. And it caused widespread stockouts and shipping delays.
But when these real-time shifts in the market happen, your WOS formula fails because it:
- Doesn't account for unprecedented increases in demand (because it relies on historical data).
- Normalizes this increase in future calculations – even if, like the pandemic panic buying, this demand doesn't necessarily last.
This normalization leaves out the necessary color to really understand your operational data.
For instance, say you go out of stock during the market shift. Sales didn't stop because there was no demand; sales stopped because there was more demand than inventory available. However, your WOS calculation won't reflect this, leaving your future operations in the dark.
4 tips to optimize inventory replenishment
Ultimately, the goal of calculating WOS is to optimize your brand's inventory replenishment process. So, here are 5 tactical tips on how to do that:
1. Improve minimum order quantity (MOQ) management
If your WOS is too high, you're likely over-stocked. So, try ordering only your supplier's minimum order quantity. However, if the amount you need is less than the agreed MOQ, you might need to negotiate better vendor contract terms.
🚨 Warning: Most suppliers won't negotiate down their MOQ (it's set to protect their business' viability). But you can negotiate terms that shift the financial burden of excess inventory (like holding costs and tied-up capital) from you to your supplier.
- Use your forecasts to map out the timing and sizing of future POs. Cogsy's production planning feature can map out the next 12 months. It also updates as new information comes up, thanks to automation.
- With a clearer picture of future demand, you can use this projection as leverage to ask your current supplier to renegotiate terms.
- Make a win-win deal by committing to placing most of these mapped-out orders with this vendor (the total amount should appease the MOQ). In exchange, ask the vendor to hold most of the production run and send the inventory over a series of smaller POs. Just makes it clear that you won't place a downpayment for the entire run – only on POs as they're placed.
- Finally, split that production run into smaller, more frequent orders as needed. This way, you don't get all the inventory at once, driving up your WOS and holding costs. This will also give you more wiggle room to pay for invoices.
2. Measure performance and conduct regular inventory audits
You can't fix a problem that you don't know you have. Luckily, conducting routine inventory audits is an easy way to confirm that what your records say you have in your warehouse is actually there.
But what does taking stock have to do with WOS? Say your inventory shrunk (via theft, damage, or another reason). Then, you don't have inventory accuracy, and your stock on hand number will be off. You, however, likely won't know this until you oversell.
You can, of course, schedule a big quarterly audit. But this will make taking stock feel like a big lift, and you might not catch the problem in time.
Alternatively, cycle counting is an inventory auditing strategy that involves counting a small portion of stock daily (or weekly). This way, you count your entire inventory over a set timeframe. With this strategy, you can catch (and resolve) any inventory issues that come up much sooner.
3. Account for seasonal fluctuations in demand
Guessing isn't a business strategy – not a very good one, at least. But that's what a lot of retailers do when it comes to seasonal demand. As a result, they typically overorder (leads to high WOS and dead stock) or underorder (low WOS and stockouts).
But you get better inventory control by rolling seasonal fluctuations into your demand forecasts. And with that information, you can adjust your replenishment strategy to maintain ideal weeks of supply throughout the year.
Forecasting seasonal demand comes down to a few different considerations:
- Is the change in demand seasonal (predictably happens around the same time each year) or cyclical (unexpected and caused by global changes like a pandemic)?
- Do you have enough inventory data to use a quantitative method, or should you use a qualitative approach? (Cogsy supports both forecasting methods.)
From there, you can gather any data, including sales data, financials, inventory information, and storefront analytics. Then, plug that data into your forecasting method.
Pay attention to underlying drivers, such as marketing events, media coverage, and inventory-specific variables. These could skew your seasonal forecast, leaving you with too much or too little inventory.
4. Stay on top of supply variability
Supply variability refers to the difference between expected and actual lead times. And it can impact a brand's ability to stay in stock and meet demand.
For instance, historically, lead times sat around a predictable 8-10 weeks on average.
But with the ongoing supply chain issues, some brands are experiencing up to 6-month lead times (~3x longer than usual).
Brands that don't keep a pulse on their order lead times might not know this supply variability is happening, putting them at higher risk of stockouts.
But by tracking the accuracy of your WOS calculation, you can identify But by tracking the accuracy of your WOS calculation, you can identify this volatility and account for these supply chain delays in your replenishment process. Or, you can use Cogsy's replenish alert feature to automate these pulse-checks.
This feature is your friendly reminder that it's time to reorder. And it works by tracking your purchase order lead times against your weeks of supply to pinpoint the ideal reorder point. When you reach that point, the alert nudges you to place your next PO.
(Cogsy's purchase order feature will even draft up an optimized PO for you to speed up the replenishment process. All you have to do is check the PO and hit "submit.")
But don't take our word for it – try Cogsy free for 14 days and see for yourself. Schedule a quick call to get your free trial set up today.
Weeks of supply FAQs
Get answers to the most common questions about weeks of supply.
What is the weeks of supply (WOS) metric used for?
Based on current inventory levels and historical demand, the weeks of supply (WOS) metric determines how long a SKU will stay in stock if it's not replenished. Retailers can use this metric to understand their products' performance and determine the ideal time to reorder.
What is forward weeks of supply (FWOS)?
Forward weeks of supply (FWOS) determines how long you'll stay in stock of a specific SKU based on current inventory levels and projected future demand. The primary difference between weeks of supply and forward weeks of supply is that WOS is calculated using historical demand and FWOS using forecasted demand.
What is the difference between weeks of supply vs. weeks on hand?
Weeks of supply estimates how long a company will stay in stock, based on its current inventory levels and historical demand. Meanwhile, weeks on hand calculates how long items sit in your inventory before they are sold.