Inventory Analytics: Which Products to Restock and Which to Drop
- The average small product business has 30% of its inventory capital tied up in stock that will not sell within 90 days
- Sales velocity: the foundation of every restock decision
- Margin-adjusted velocity: ranking your restock priorities
- The discontinuation decision: which products to stop ordering
- Seasonal inventory decisions: adjusting your framework for demand shifts
- Automating restock decisions with connected inventory and sales data
Inventory decisions tie up more cash than any other operational choice in a product business. A data-driven restock framework prevents both stockouts on your best lines and cash tied up in slow movers. This post builds that framework from the ground up.
- The average small product business has 30% of its inventory capital tied up in stock that will not sell within 90 days
- Sales velocity: the foundation of every restock decision
- Margin-adjusted velocity: ranking your restock priorities
- The discontinuation decision: which products to stop ordering
- Seasonal inventory decisions: adjusting your framework for demand shifts
The average small product business has 30% of its inventory capital tied up in stock that will not sell within 90 days#
That estimate, from a 2024 supply chain analytics study, represents a significant capital efficiency problem. For a business holding £150,000 of inventory, £45,000 is sitting in slow or non-moving stock, incurring carrying costs, occupying storage space, and representing capital that could be deployed into faster-moving, higher-margin lines. The businesses that manage inventory most efficiently are not those with the most sophisticated software. They are the ones that make explicit, data-driven decisions about what to restock and what to stop ordering. The framework for those decisions is not complex. It requires three data inputs: sales velocity per SKU, current stock level, and margin per unit. With those three inputs, you can make better inventory decisions in 30 minutes per week than most businesses make intuitively across an entire month.
Sales velocity: the foundation of every restock decision#
Sales velocity is the rate at which a product sells, expressed in units per day or units per week. Calculate it for every SKU by dividing total units sold in the last 90 days by 90 (for daily velocity) or by 13 (for weekly velocity). Use 90 days rather than 30 to smooth out week-to-week volatility while still reflecting recent trends. Once you have velocity per SKU, calculate days of cover for each by dividing current stock on hand by daily velocity. A product with 40 units in stock selling at 4 units per day has 10 days of cover. If your supplier lead time is 14 days, you are already past your reorder point — you should have ordered 4 days ago. This simple calculation, run weekly across your full SKU list, identifies every restock emergency before it becomes a stockout.
Margin-adjusted velocity: ranking your restock priorities#
Not all stockouts are equally damaging. Running out of a high-margin, high-velocity product is a major profit loss. Running out of a low-margin, low-velocity product is a minor inconvenience. Prioritise your restock decisions by margin-adjusted velocity: multiply daily velocity by gross margin per unit. This produces a value score per product per day. A product selling 5 units per day at £8 margin per unit scores 40. A product selling 8 units per day at £2 margin per unit scores 16. The first product is 2.5 times more important to keep in stock despite having lower volume. Rank all your SKUs by this score and ensure your stock management system — whether a spreadsheet, an inventory tool, or a connected analytics platform — reflects the priority order, not just the unit velocity.
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The discontinuation decision: which products to stop ordering#
A product should be evaluated for discontinuation when it meets two criteria simultaneously: low sales velocity (fewer than 0.5 units per day for most retail categories) and low or negative gross margin. Products meeting both criteria are consuming cash, storage, and management attention while contributing little to profit. The evaluation process should also consider trend direction — a product that sold 2 units per day 12 months ago and now sells 0.3 is declining and is unlikely to recover. Contrast this with a product that has low velocity but positive margin and stable trend, which may serve a specific customer need worth maintaining. Before discontinuing, check whether the product is purchased together with high-velocity lines — if 40% of customers who buy your best seller also buy this low-velocity product, removing it may have a basket value impact that outweighs its standalone poor performance.
Seasonal inventory decisions: adjusting your framework for demand shifts#
A restock framework built on a 90-day sales velocity average will underperform at seasonal inflection points. If you calculate velocity in September using July and August data, you will underorder for Q4 demand. Adjust your framework seasonally by applying a seasonal multiplier to your velocity calculations during the four to six weeks before a known demand uplift. If your seasonal index shows November running 60% above your average month, multiply your calculated daily velocity by 1.6 when calculating days of cover and reorder quantities in October. This ensures your stock positions are scaled for expected demand rather than trailing demand. Review and update seasonal multipliers each year using your actual sales data from the prior year, and the forecast accuracy will improve with each annual cycle.
Automating restock decisions with connected inventory and sales data#
The manual version of this framework — pulling sales data weekly, calculating velocity per SKU, checking stock levels, and generating a reorder list — takes two to three hours per week for a business with 100 to 200 SKUs. For larger ranges, it becomes impractical without automation. Connecting your Shopify or inventory management system to an analytics tool that calculates days of cover and flags restock alerts automatically reduces this to a 20-minute weekly review of the alerts, rather than manual calculation. The restock decision itself still requires human judgment — considering supplier minimums, cash position, storage capacity, and market conditions — but the data gathering and initial prioritisation can be fully automated. For businesses where inventory decisions are the primary driver of both profit and cash flow, this automation is among the highest-leverage operational investments available.
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