Forecasting and Stock Replenishment

A stock system can pay for itself if it helps to avoid the "lost sale” — the situation where you haven’t made a sale because you had not got the item in stock. An example of this is given in the figure overleaf, which charts stock holding against time to show a typical cycle of events.

In some sectors you may be able to substitute a different item, which can reduce the effect of lost sales. For example, if you stock two brands of cola and run out of one, then the other may be an acceptable alternative.

The key to avoiding lost sales is to forecast the rate at which sales are made, and therefore to re-order new stock in time so that you do not run out. The Datafile Software stock system contains a number of facilities and reports to help you manage stockholding to maximise sales.Typically a stock controller would review stock on a weekly basis — not necessarily the whole stockholding, but possibly a group of stock codes each week on a rolling basis.

A number of pieces of information are needed for these mechanisms:

Time Period Unit. You must specify (under the stock System Profiles) a time period that represents the size of filter through which you will analyse your sales and stockholding.Typically this is a week, but could be days (a week might be too long for fast moving stock) or a fortnight, or a month even. This is a global decision and everything else is based on this time period

Lead Time. This is defined for each product, and represents the length of time, measured in the time units just defined, which would elapse between ordering the item from your supplier and you receiving it. You do not have to give a lead time for every item, only to those which you want the system to monitor

Estimated Usage. This represents the number of units you expect to sell in the time period unit defined above. Initially you might enter a guess here, but each month you can ask the computer to calculate a replacement figure based on the experience of actual demand over either the last month, or the year so far

Minimum Stock Level. For some stock items you may want to set a minimum level, to act as a buffer for variations in demand — see later. For slower-moving items you might set its value at one, so that every time you sell one you are prompted to order a replacement

You now have enough information to make one of the first judgements on your stock items — is it time to order more? A typical cycle of events is shown in the following diagram:

In the above example, the stock controller got it right the first and third time, but was a bit slow re-ordering the second time round. Even the minimum buffer stock was not enough to prevent the item becoming out of stock. Were sales lost because of it? We’ll never know for sure that some customers didn’t buy elsewhere.