Writers and contributors: Lauren Schanding and Andy Hiscox
The stock projection functionality is designed to provide greater visibility of what is likely to happen to your inventory based on your stock data, item forecasts and inventory policy settings currently in the App. Taking your current stock position, the projection works forward to predict the value of your projected stock, fill rate and recommended orders on suppliers for the next year. The projection is an important tool to assess whether your inventory policy settings have the desired outcome.
One of the biggest impacts to the projection comes from demand forecast adjustments. If the computer generated forecasts are out of line with what you realistically expect for your business, adjustments should be made. However, if forecasts are manually adjusted to reflect a dramatic increase, and sales do not match up, your stock projection will be overly optimistic.
If your current stock is out of balance, meaning many items are stocked out and many other items currently carry excess stock, the App will immediately propose replenishing items that are out of stock. However, should the value of excess stocks not deplete at the same rate, there may be an initial increase in the closing stock values. This will be highlighted in the projection which then allows for modelling a scenario that better fits business objectives, particularly with respect to cash flow.
Target fill rates have a substantial impact on the projection. For example, if your target fill rates are very high, the App will attempt to increase your recommended orders and subsequently the inventory to align to the higher fill rate.
Therefore, if your projection shows a large ‘spike’ in the projected stock level, then the current stock levels do not support your fill rate and demand targets. If the projected increase in stock holding is unrealistic for your budget, supplier capacity, or physical space, one recommended adjustment is to lower the target fill rate for selected groups until your order recommendations and projected stock is at a manageable level. Another adjustment to consider is reviewing your demand forecasts to ensure they are appropriate and realistic.
There are some other factors that may need to be reviewed as they may have a negative impact on the projection. These include:
unrealistic lead times
poor data quality, for example sales orders or purchase orders that have not been properly closed and still show as outstanding
inaccurate minimum order quantities
For an accurate picture, the data must be cleansed and the demand should be realistic.
The tabs explained
Summary tab
The Summary tab provides an overview of the projected health of your inventory over the next 12 months, including:
Whether your inventory value is coming down
Whether your fill rate and stock turns are increasing
The forecast demand value
The value of ideal order recommendations
When existing purchase orders and ideal order recommendations are projected to be receipted
The information can be:
Filtered; click the Filter button and specify what part of the business to run the projection e.g. stocked items or A items
Downloaded; click the Download button (at the top of the screen) to create a CSV file containing the filters used to run the projection AND the values for each of the graphics shown on the summary tab, by month for the next 12 months
Components of the Summary tab:
Hovering over the line graph displays the value at that point.
The Inventory graphic projects your closing stock value, where:
Aug 2015; shows your stock value as at today (9.2m)
The purple line; charts the closing balance at the end of each month, starting from the end of this month (7.3m)
The value may go up from today's stock value due to orders still to be receipted before month-end
Jul 2016; shows the projected stock value in 12 months time (11.1m)
The Fill rate graphic projects your product availability to your customers and should be viewed in conjunction with the Inventory graphic.
In this example: the fill rate is projected to increase significantly (62%) while the inventory value increases at a lower percentage (21%). With a better balance to your inventory, this should also result in an increase in sales.
Check the relationship between inventory value and fill rate. A good inventory result is typically one of the following:
Investment in inventory reduces and fill rate increases
Investment in inventory stays the same but fill rate increases
Fill rate stays the same but investment in inventory reduces
Stock turns is a measure of how many times you will sell your stock on hand value over the next 12 months.
A good outcome for stock turns is that the projected stock turns at the end is more than the stock turns at the beginning.
The Demand graphic shows the total forecasted demand value, by month, for the next 12 months, where:
Total demand represents the sum of all demand streams, including forecasted sales from a location, distribution centre demand, and bill of materials (manufacturing) demand
The first point shows the demand for the remainder of this month, whilst every other point shows the demand for the entire month, therefore this point may be significantly lower if your projection is done towards the end of the month
The Recommended orders graphic shows the next 12 months of ideal recommended orders, over-and-above what you already have on order.
The Receipts graphic shows when orders should be delivered, including:
Receipts for existing/outstanding purchase orders (brown bars)
Receipts for the ideal recommended orders in the graphic above (green bars)
Inventory tab
The Inventory tab is an extrapolation of inventory values for 12 months into the future, based on current stock data, inventory policy parameters and demand forecasts, highlighting:
Closing stock; the closing stock for the next 12 months (black line)
Excess stock; inventory identified to be above what is required (light red band)
OK; balanced inventory (light grey area)
Firm receipts; receipts for existing/outstanding purchase orders (brown bars)
Projected receipts; receipts for order recommendations (green bars)
Clicking on the Table button displays the data used to plot the inventory graphic in tabular format.
Projected values are all calculated using average cost, which enables a like-for-like comparison.
Fill rate tab
The Fill rate tab shows:
Fill rate; a measure of our ability to supply our customers
Stock turns; a measure of how many times you will sell your stock on hand value over the next 12 months
Cover days; a measure of how long your stock on hand will last
A good outcome is:
Fill rate increases
Stock turns increases
Cover days decreases
Clicking on the Table button displays the values for Fill rate %, Stock turns and Cover days in tabular format.
Replenishment tab
The Replenishment tab shows:
Recommended orders (light brown bars); the next 12 months of ideal recommended orders, over-and-above what you already have on order
Firm receipts (brown bars); receipts for existing purchase orders
Projected receipts (green bars); receipts for the ideal recommended orders
Clicking on the Table button displays the values for Recommended orders, Projected receipts and Firm receipts in tabular format.
Demand tab
The Demand tab shows all predicted demand streams for the next 12 months.
Your business could have one or more streams of demand, including:
Forecast & SOs demand: forecast sales to customers from this location
Sales orders; firm sales orders
Bill of materials (BOM) demand; manufacture in this location
Distribution centre (DC) demand; supply to other locations from this location
Clicking on the Table button displays the values for Forecast, BOM demand, DC demand and Customer orders in tabular format. You are also able to view the Stock out adjustment and Lost Sales values.
Stock out adjustment; indicates the net value of demand that is added or removed from a given month relating to order fulfillment. A negative value indicates a net decrease in demand fulfilled in that month due to lack of stock. A positive value indicates a net increase in demand fulfilled in that month because unfulfilled demand from prior months can be supplied. In the example in the image above, there was insufficient stock in November to fulfill orders therefore there was a negative stock adjustment of -81.2k. In December, more stock was available so the demand for December was able to be fulfilled, as well as the prior month’s unfulfilled demand. Since the demand is now able to be fulfilled, it is represented as a positive number, in this case, 81.2k.
Let’s look at a different example. Say there was not enough stock on hand for July 2021 with an unfulfilled demand of 300k. Then in August 2021, there was zero stock on hand with an unfulfilled demand of 700k. In September 2021, a large shipment of stock of 3 million arrives which fully satisfies the September demand of 2 million. The stock out adjustment figures in the table would look like this:
| Jul-21 | Aug-21 | Sep-21 |
Stock out adjustment | -300k | -700k | 1m |
Lost Sales; this indicates the value of lost sales due to a stock out, taking the forecast and back order percentage into account. Within the lead time, lost sales are based on the projected stock position and any demand discarded according to the back order percentage. Outside the lead time, we'll lose sales according to the combination of the target fill rate and back order percentage (unless we expect to be above the max level).
Calculation of projected lost sales (outside of lead time):
(100 % - target fill rate %) x (100 % - back order %) x total demand
The Importance of Filters
Filters are used to determine which groups of items are used to calculate the stock projection.
Select an available filter
If the filter you wish to view has already been defined, simply select it from the drop down.
In this example there are three available filters, namely:
Central
Excess Stock
Potential Stock Outs
Define and save a new filter
Click on the filter button to define and save a new filter.
Specify the criteria
Give the filter a name in the "Save filter as" field
Click the Save button
