Replenishment cycle and Safety stock values are specified in days instead of units. Why? By specifying these values in days, the Netstock App can automatically convert it to units by considering the forecast. This means that during peaks of high demand, a 30 day Replenishment cycle will dynamically result in more units than it would during times of low demand.
Units = Days * Daily forecast
Which also means:
Daily forecast = Units / Days
Now we know that Lead time, Safety stock and Replenishment cycle are all specified in days and converted to units by considering the forecast. But which forecast?
Considering the example above, we can calculate the Daily forecast for the Lead time, Safety stock and Replenishment cycle by dividing Units by Days.
Lead time: 1272 / 45 = 28,27
Safety stock: 664 / 19 = 34,95
Replenishment cycle: 788 / 21 = 37,52
We can see that the Daily forecast differs for each calculation. Is the same forecast, therefore, not being considered when converting these values from days to units?
The answer lies in which part of the forecast we are viewing.
The forecast between “Now” and “LT” is used to convert the Lead time value from days to units, whereas the forecast between “LT” and “SS” is used to convert the Safety stock value from days to units and the forecast between “SS” and “RC” is used to convert the Replenishment cycle value from days to units. This forecasting horizon for LT + SS + RC is what is known as the Cover forward period.
Orders generated today will aim to get your stock to the Order up to level (LT+SS+RC) which means the Cover forward period will be the forecast considered in today’s order.
For more on order calculations, refer to How is the Recommended Order Quantity (ROQ) calculated?
If you’re struggling to read the forecast values during the Cover forward period, expand the table on the Projection tab for a more detailed breakdown.
Why LT, SS and RC in that order?
Once you’ve placed an order, it will take the duration of a Lead time for it to arrive. During that time, your stock will be reduced by the Daily forecast of the immediate forecast, as it realizes into actual sales. Should your order not arrive on time, your stock will start to dip into your Safety stock, at a daily rate equal to the Daily forecast after the Lead time forecast.
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