What is a Cycle Stock in E-commerce?
Cycle stock in e-commerce is selling a product or service in a cyclical pattern, such as seasonally or during holiday periods. It allows businesses to manage their inventory and reduce the risk of overstocking. Cycle stock helps firms to capitalize on peak demand periods and optimize their supply chain by predicting customer demand.
Significance of Cycle Stock in E-commerce
Cycle stock is a crucial element of a business’s accounting system. Here’s how:
- A cycle stock helps businesses to accurately forecast their inventory needs by tracking the sales history of their products. It is designed to identify potential spikes and drops in customer demand and to adjust their supply accordingly.
- This cycle stock system assists businesses in avoiding overstocking and understocking and ensuring that they always have enough inventory to meet customer demand. Understanding how much cycle stock is needed is essential to maximizing inventory efficiency.
Prerequisites to Calculate Cycle Stock and How It Works
The prerequisites to calculate cycle stock are –
- Accurate records of all stock transactions, such as purchases, sales, returns, and transfers
- Accurate and up-to-date information about the lead time for all products
Cycle stock is calculated by adding the maximum expected demand during the lead time to the safety stock. The cycle stock is usually calculated using the economic order quantity (EOQ) formula –
Q = √[(2 x demand x ordering cost) / carrying cost]
Use Case With Cycle Stock
Assume ABC retail company produces a line of women’s tops. The company sells 2,000 tops each year; it costs AUD 10 to hold a top in the warehouse for a year, and the fixed cost of the order is AUD 5.
Q = √[(2 x 2000 x AUD 5) / AUD 10]
Q = 44.72
The ideal order size of ABC is 45.
