Written by Ruvisha Pillay, Mark Whiteacre and John Panayotou

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The Marketing team has word that one of the goods sold by your business has been received well by customers, where word-of-mouth has been a key contributor to the upswing in sales. The Marketing team is keen on capitalizing on this opportunity by running a promotion on this item in store, and they would like to get those wheels in motion right away! They come to you, being the buyer/planner, and it’s up to you to advise whether or not a promotion right now (or at least in the very near future) is possible. Well, where do you start?

Well, the first thing you need to do is get a gauge of the predicted sales the promotion will bring in. Do you have enough stock on hand to meet that demand? If not, do you have any orders coming in to get the item up to the required stock level to satisfy this potential increased demand?

In a typical scenario, you would need to check our stock on hand vs the current demand. For that, you can head over to the Inquiry page of your item.

The Policy, Inventory position, Order recommendation and Status panels give you a good place to start. Today’s date is 28 Aug 2021. Immediately, something sticks out to you. On the Status panel, it is indicated that you are going to potentially stock out of this item on 03 Sept 2021. That’s just 6 days away! Oh no… do you have enough time to place an order? Well, the lead time for this item is 7 days, as per the Policy panel. Perhaps, the supplier would look kindly on you and rush the order so that you can get the stock on time. Yeah, let’s do that. Hmm, another red flag. In the Order recommendation panel, you have a recommended order of ZERO units. How on earth can that be? You’re clearly about to stock out, you need to bring stock in.

Let’s think about this again. The Inventory position panel shows you that you have stock on order, totaling 3675 units. Well, that’s a relief! No wonder we don’t need to place another order. The 3675 units will be more than enough to cover the Potential stock out of 255 units. Here lies another question though. When are those orders due to arrive? Opening the Purchase orders tab on the Inquiry screen will give you that answer. The entire amount of 3675 units is on one order, and that order is due to arrive on the 15 Sept 2021.

Now, you have something new to think about. Not only will you not have stock for an upcoming, unforecasted promotion. You may also now face stock out in just a week’s time! There must be a way to see how this all ties together. In comes the Projection tab.

This article aims to give you an understanding of the elements included in the Projection tab, which is found on an item Inquiry screen. The Projection tab is a useful tool for inventory planning because it shows how an item will ideally perform over the next 12 months. It gives you a view of the opening and closing stock for an item, along with its projected demand and receipts. You are able to view information in a graphical or tabular format.

This is where it all ties together. You open up the Projection tab for item 25002 and find you have options. You can view the information graphically or in tabular format.

You are able to select or deselect labels on the legend of the chart to either display or hide data. In the image below, three labels have not been selected: Orders, BOM demand and DC demand. You are able to recognize that these labels are not selected because they are grayed out on the chart’s legend.

The lines that we see on the projection tab graph are drawn from the information given on the table view. Further down the article, we describe the components found in the table view. Below is a brief description of the lines shown on the graph of the projection tab.

Closing stock (purple line): this represents the closing stock on hand for each day for a 12 month period. The closing stock is calculated by subtracting demand, and adding receipts to the opening stock value (see detailed calculation further down the article). The objective is to have this line remain between the Minimum and Maximum levels (gray area). The gray area shows an ideal level of stock without minimum order quantity (MOQ) constraints. If the line remains within this gray area, the item’s status will be “Ok.” If not, there may either be a “New” status allocated, or a status requiring critical review i.e. “Excess stock,” “Surplus orders,” “Potential stock out” or “Stocked out.” For this particular item, the initial closing stock is below the gray area, meaning that the closing stock level is below the minimum level. We see that as the days progress, this line ventures into the red zone, which is essentially a stock level of below zero. Because of this, there is currently a “Potential stock out” status allocated to this item. We also see that receipts (red lines) take the stock level up to well above the gray area i.e. over the maximum ideal stock level. This is because of MOQ constraints. Despite this, an item will not be considered in excess unless it also exceeds the MOQ.

Orders (blue bars): this represents when projected orders should be placed, along with the associated quantity. In this scenario, there is a projected order of 4000 units that should be placed today, 28 Aug 2021, as shown by the blue bars in the first image.

Receipts (red lines): this represents the estimated delivery of the projected orders. This corresponds to the projected order indicated by the blue bar i.e. 4000 units projected to be ordered (blue bar) and 4000 units projected to be received (red lines).

Firm receipts (gold lines): this represent open purchase orders due for delivery.

The details for each of these purchase orders can be found on the Purchase orders tab. In this example, there is a firm order due mid-Sept, which you have confirmed by looking at the Purchase order tab.

Sales orders (green bars): this represents any open sales orders that are due to be delivered to a customer. In this graphical representation, we find that the sales orders are all at the beginning of the graph. The details for each of these Sales orders can be found on the Sales orders tab. It can also be found in the table, which we will explore further later on.

BOM demand (gold bars): this represents demand that a finished good item requires. This is applicable if the item forms part of the raw material of a BOM structure. The length of the BOM demand bar indicates the unit quantity of the demand (with the ratio taken into account). There is no indication of BOM demand in this graph.

DC demand (light blue bars): this represents the consolidated requirement from the linked locations. This is applicable if the location provides this item to dependent locations. You see a scattering of DC demand for item 25002. For more details on that, the DC tab can be opened.

Clicking on the “Table” button allows you to view information in tabular format for a day by day account of the stock projection.

Clicking on "Orders" will show you what the projected orders are for an item for the next 12 months.

You can use the “CSV download” button to download all the information to a simple CSV file to share as needed. This download can be used in Microsoft Excel.

The graph looks good to you, but you prefer seeing this information in actual numbers. You would like to look at the finer details. For that, you can head over to the table view.

The date column provides a reference for the day by day account of the below information:

Demand: multiple demand streams may exist simultaneously. These columns allow you to view the breakdown of demand per stream.

Levels: this column shows you the min and max stock level per day. The item status will be “Ok” if the stock level exists between these two parameters. Have a look at the closing stock for 28 Aug, it is 559 units. The minimum stock level for that day is 700 units. For that reason, the closing stock line on the graph was below the gray area.

Open: this column indicates the projected opening stock figure per day. The opening stock is equal to the closing stock of the day before. For example in the table above, the opening stock of 559 on the 29 August is equal to the closing stock of 559 from the 28 August.

Back orders: each heading in this column has a percentage assigned to it (which can be viewed by hovering over the heading - see example in the image below of the back order for FC). The percentage indicates the value of the demand that will be carried over in the case of stock not being available to meet the demand. The back order percentage will take effect if the opening stock is zero or negative. A back order percentage of 100% means that the customer will always place a back order if there is no stock available. This setting is global, which means if the FC backorder percentage is 50% for example, it applies to all items and locations. This setting can only be changed by a Netstock Customer Success Consultant..

Firm rcpt: this column shows existing purchase orders and its expected delivery date. In the example in the table above, you are able to see your order of 3.7k units that will be delivered on 15 Sept.

Receipt: this column indicated when a projected order should be received. In the example in the table above, there is a receipt of 4k units due on 4 September. This is a lead time from the date that the order is expected to be placed i.e. 7 days from 28 August.

Order: this column indicates a projected order quantity and the date that the order should be placed. In the example in the table above, there is a recommended order of 4k units that should be placed on 28 August.

Closing: this column indicates the projected closing stock figure per day. The calculation for closing stock would be:

Opening stock - demand (stock leaving the company) + receipts (stock entering the company)

In this scenario, you start with an opening stock of 625 on the 28 August. We then subtract the demand, which would be the daily forecast of 65 plus the DC forecast of 1, being a total of 66. There are no receipts. Therefore the closing stock calculation will be as follows:

625 (Opening stock) - 66 (demand) + 0 (receipts) = 559

The next day, 29 August, the opening stock will begin with yesterday's closing stock of 559.

The table also shows you the lead time (green row), safety stock (beige row) and replenishment cycle (purple row) in both days and units. More about this below.

Let’s go back to the Policy panel on the Inquiry screen of item 25002. We see the lead time, safety stock and replenishment cycle in both days and units.

In the table below, we see the same figures for lead time, safety stock and replenishment cycle in days and units. The rows have been highlighted in corresponding colors for easy identification. For example, the lead time on the policy panel has a green indicator next to it. The lead time is 7 days, and has been converted into 996 units by the forecasted lead time over the cover forward period. This conversion from days to units uses the demand over the lead time portion of the cover forward period (more on this in the next section). In the table below, the lead time row is highlighted in green and states the lead time of 7 days with a total demand of 996 units. The safety stock and replenishment cycle works in the same way.

Q. How does the projection module account for month to date and open sales orders? What is the impact of future sales orders and overdue sales orders?

Month-to-date sales do not impact the projection. The current month's forecast is reduced pro-rata based on how far we are into the month. That forecast is further reduced by any sales orders due in the current month that are not yet overdue. Overdue sales orders are included in "overdue demand" and deducted immediately on day 1. They do not have an impact on the forecast. See example below.

On the Inventory position panel of item 25002, we see a stock on hand figure of 707 units. However, there is an opening stock figure of 625 on the table view for the 28 August. This is because there is an overdue demand of 82 units. This has been subtracted from the stock on hand figure to give us the opening stock value.

Stock on hand (707 units) - Overdue demand (82 units) = First opening stock value on the projection tab (625 units)

In the forecast tab (of the inquiry screen of item 25002 - Central Warehouse), we see that the item had a forecast of 2.9k units for August. Clicking on the pencil to amend the forecast will allow you to view the exact numbers. The forecast shown in the projection tab for August has been calculated as follows:

2907 units / 31 days = 93.8 units

93.8 units * 4 remaining days = 375.2 units

375.2 units - 119 units (sales order on 31 Aug) = 256.2 units

256.2 units / 4 days = 64.05 units

Because the forecast is depicted in integers, the forecast figure may vary by one unit during the month to account for the decimals being carried over.

Q. How does the lead time get converted from days into units?

To answer this, we first need to understand the cover forward period. The cover forward period is defined as the period of the lead time (in days), plus the safety stock (in days) plus the replenishment cycle (in days). In order to convert the lead time from days into units, the demand over the lead time period is used. In the image below, the demand to convert the lead time from days to units will be from the period “Now” until the green dotted line for “LT.” See link to article below which explains this further: Cover forward period: How are LT, SS and RC converted from days to units?

Q. What is a back order percentage? Where does it get set up?

Back order percentage: this refers to the percentage of demand that will carry over if the opening stock is zero or negative. To determine what this percentage should be, ask yourself if you do not have stock, how often will a customer either place a backorder or wait until you are back in stock? If you have a sales forecast of 50 units and a back order percentage of 50% and you are out of stock, then the back order sales forecast will be 25 units. The same logic applies to the BOM and CW back order percentage calculations.

Back order percentages can be amended by your Netstock Customer Success Consultant. This is a global setting, i.e. when set at a percentage it will apply to all the locations and product codes, i.e. everywhere.

Q. What is lost sales compensation?

Lost sales compensation: automatically increases sales history to compensate for sales that may have been lost during months where there was no available stock. A value between 0% and 100% can be specified in the Configuration menu - Forecast tab - Sales history panel. The lost sales compensation only adjusts the months where there has been a stockout of at least 1 day. These stockout day counts (per month) are calculated by the Netstock app and not imported from the ERP system. Because Netstock calculates this from the day it goes live, this stockout day history has to build up. The lost sales quantity calculated is based on the forecast history that the app calculates for that month.

Q. What is the difference between lost sales compensation and back order percentages?

Lost sales compensation affects your sales history (but does not change the actual sales numbers on the enquiry screen), and therefore your forecast. Back order percentages influence your projection tab calculations.

Now that you have analyzed this data, you are able to give feedback to the Marketing team. As it stands, your warehouse does not have enough stock on hand to supply the potential increase in demand which would come from a promotion. However, considering the lead time of 7 days, you could possibly assist with a promotion in a week’s time after placing an order with your supplier and receiving that delivery. You could also opt to bring forward the order from 15th September. You have options, and all that information you need to make decisions is available to you in the Projection tab.

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