Every distribution system can tell you how fast each item sells. Fewer distributors have a routine for reading that data and turning it into decisions: what to stock, what to reorder, what to reprice and what to drop. This article gives you that routine.
What velocity means
SKU velocity is the rate at which an item sells, usually counted in units (cases, pounds or eaches) per week. It is the simplest demand signal you have, and it feeds almost every inventory decision: reorder points, safety stock, slotting, price reviews and discontinuation.
Settle two things before you read any report:
- Count in one unit. If an item sells both by the case and by the each after a case break, convert everything to one unit before you compare periods. Otherwise a change in how customers buy looks like a change in how much they buy.
- Look at what customers ordered, not only what shipped. When an item was out of stock, shipped units understate demand. Short-shipped and cancelled lines tell you about sales you lost.
Four windows, four questions
No single time window tells the whole story. Comparing several helps you separate a blip from a trend.
| Window | Question it answers | Decisions it drives |
|---|---|---|
| Last 4 weeks | What is moving right now? | Reorders, sharing out short stock |
| Last 13 weeks | What is the underlying rate? | Reorder points, safety stock, price reviews |
| Last 52 weeks | Is this a steady line or a short run? | Range decisions, discontinuation |
| Same period last year | Is it growing or shrinking? | Supplier talks, sales focus, seasonal buying |
When the short window and the long window disagree, look closer. A 4-week rate well above the 13-week rate might be a new customer, a promotion or the start of a season. Find out which before you change a reorder point, because only some of those will last.
A reading routine
Velocity reports are most useful on a fixed schedule, with a different focus each time.
- Weekly: your top movers, compared with the same week last year and with their own recent average. Are any of the items that carry most of your volume slowing, or about to run out? Is anything climbing fast enough to outrun its reorder point?
- Monthly: the slowest movers, ranked by 13-week velocity, next to how much stock and cash sits in each and how close any lots are to expiry. Decide which to reprice, run down or discontinue.
- Quarterly: the whole catalog, year over year, by category and by customer group. This is where structural shifts in what your customers buy show up.
Patterns worth acting on
- An item climbing quickly. Raise the reorder point and safety stock before you run short, and check that the supplier can keep up. Growing volume is also a reason to revisit terms with that supplier; see negotiating with suppliers.
- A steady item starting to decline. Find out why before you cut the order. Look at which customers stopped buying it. A lost account, a substitute you also carry, a quality complaint and a competitor's price are different problems with different fixes.
- A slow item that never moves. Check how much cash and space it uses, and whether a good customer depends on it. Some slow items earn their place because an important account needs them. Others are candidates to run down and drop.
- A seasonal item peaking early or late. Shift your buying calendar instead of treating the gap as lost demand.
- An item that is often short. Its velocity understates demand. Use ordered quantity rather than shipped quantity, and check whether your reorder point and lead-time assumptions still fit.
Split velocity by customer group
A company-wide number hides as much as it shows. An item that looks flat overall might be growing with restaurants and falling with grocery accounts. Those are two different stories: one is a sales opportunity, the other may be a lost account or a competitor moving in. Split velocity by customer type, by rep territory and by warehouse if you have more than one. When an item drops, the first question is usually "which customers stopped buying it?", and the answer is often one or two accounts.
Read percentage and absolute change together
Ranking by volume hides large relative changes in mid-sized items. Ranking by percentage change floods the list with tiny items. Use both. As a hypothetical example, an item that drops from 30 cases a week to 20 has lost a third of its volume, yet it will never appear on a top-movers list. An item that goes from 2 cases a week to 4 has doubled, and probably does not matter. A simple filter, such as "changed by more than a set percentage and by more than a set number of cases", keeps the review list short and meaningful.
Don't skip the long tail
The top movers get attention because everyone already knows them. The slow end of the catalog is where cash sits on shelves, product ages toward its expiry date, and space goes to items few customers buy. A monthly look at the bottom of the list is often where the most cash is recovered. Our article on reorder points and safety stock for produce covers how to set stock levels once you know an item's rate.
Turn the reading into decisions
Keep a short log of what you decided and why: "raised the reorder point on item X after three weeks of growth", "running down item Y, last purchase order placed". At the next review, check whether each decision worked. Over time this log becomes one of the most useful reports you have, because it shows which of your judgments held up.
How APFoodz helps
APFoodz report explorers answer questions like these, and demand forecasting puts what is expected beside what is selling.