Inventory Purchases & Reorders
Inventory Purchases and Reorders
This use case explains how to plan inventory purchases and reorders for eCommerce and direct-to-consumer brands using Model Reef.
You will:
Use demand and sales forecasts to infer required stock levels.
Model supplier lead times and minimum order quantities.
Plan purchase orders by SKU or product family.
See the impact of inventory decisions on cash and working capital.
When to use this pattern
Use this pattern when:
Inventory and purchasing decisions are a major use of cash.
You need to plan ahead for long lead times or seasonal peaks.
You want a simple, visual way to see how stock policy affects cash and risk of stock out.
You will typically connect this with:
SKU Margin and Contribution Modelling
Multi Channel Revenue Forecasting
Inventory Turnover and Working Capital (manufacturing use case adapted for D2C)
Architecture overview
Step 1: Start from volume and unit cost assumptions
Ensure you already have:
Sales volume drivers per SKU or family from Multi Channel Revenue Forecasting or SKU level models.
Unit cost per SKU or family from SKU Margin and Contribution Modelling or BOM and Unit Cost Modelling.
These will be used to determine how much stock is needed and what it will cost.
Step 2: Define stock policy and lead times
In the Data Library, create drivers per SKU or family for:
Target Days of CoverorTarget Weeks of Cover.Supplier Lead Time in Days or Weeks.Order Frequency(weekly, monthly, or at fixed thresholds).Minimum Order QuantityorOrder Multiple(for example cases or pallets).
Simpler models can use one set of stock policy drivers per product family. More detailed models can use per SKU assumptions.
These drivers describe how much stock you aim to hold and how early you must order to avoid stock out.
Step 3: Approximate required stock levels
Using volume forecasts, approximate required stock levels. For example:
If using days of cover:
Required Stock Level at Period End = Next Period COGS per Day × Target Days of Cover.
If using weeks of cover:
Required Stock Level = COGS per Week × Target Weeks of Cover.
Create Asset type variables such as:
Inventory - Product Family A.Inventory - Product Family B.
These represent the value of stock you intend to hold, based on demand and policy.
Step 4: Translate required stock into purchase orders
Changes in stock between periods tell you how much to purchase, before factoring in lead time, for example:
Purchase Quantity this Period = Required Stock Level plus COGS for this Period minus Opening Stock Level.
Convert that into units or value per SKU or family.
Then, adjust for lead times by:
Shifting purchase timing earlier, so that stock arrives before it is needed.
Using schedules or delays to represent when purchase orders are placed versus when goods arrive.
You may also apply:
Minimum order quantities by rounding up to the nearest pack size.
Order batching by grouping purchases into monthly or quarterly orders.
Represent purchases as COGS or Asset related variables with appropriate timing so that:
Cash outflows occur when suppliers are paid.
Inventory assets increase when goods are received.
Step 5: Model supplier payment timing
For purchases, use timing rules to represent supplier payment terms, for example:
30 days from invoice date.
60 or 90 days for key suppliers.
Costs for purchases can be modelled as COGS variables with delays that reflect payment terms, or as Asset related variables if you want to split recognition of inventory value from cash movement.
The key is that:
Cash leaves when payments are due.
Inventory value increases when goods are received.
Model Reef’s AR and AP mechanics will reflect these timing differences in the Balance Sheet and Cashflow Statement.
Step 6: Build inventory and purchasing dashboards
Create dashboards that show:
Planned purchases per period by SKU, family or supplier.
Inventory levels and days of cover over time.
Cash outflows related to purchases.
Periods where purchases and other cash demands coincide and risk cash strain.
Use these views to:
Shift orders earlier or later.
Change stock policy for certain products.
Adjust campaign and promotion timing to better match stock and cash availability.
Step 7: Use scenarios for policy, supply and demand shocks
Clone the model into scenario models representing:
Leaner inventory strategy (lower days of cover).
Higher safety stock for key items.
Longer supplier lead times due to supply chain disruption.
Faster or slower demand growth.
In each scenario, adjust:
Stock policy drivers.
Lead times and minimum order quantities.
Volume forecasts.
Compare scenarios using:
Inventory investment and working capital.
Cash requirements and minimum cash.
Stock out risk and revenue loss risk (approximate).
Check your work
Stock policy assumptions are realistic for your category and supply chain.
Inventory levels and cash outflows match your expectations for historical periods when calibrated.
The seasonality of purchases matches major product and campaign cycles.
Purchase volumes are attainable from suppliers and consistent with minimum order constraints.
Troubleshooting
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