Automatically increase sales history to compensate for sales that may have been lost during periods where there was no available stock. Specify a value between 0% (no impact) and 100% (maximum impact). 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 app and not imported from the ERP system. Because the app 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.

This setting should be used conservatively.

A setting of 100% could work really well to reduce risk of under-forecasting.

However, having been stocked-out could actually negatively impact the forecast if it resulted in a customer being lost.

Because this is a global setting, it will apply to all items in the business. It is therefore important to understand the business as a whole:

If the answer is stock-out, set the parameter to between 80% and 100%. If the answer is excess, set the parameter to between 10% and 30%. When on the fence, set it to between 40% and 50%.

In my first example, the item has fairly regular sales of about 1000 units a month. However, it was stocked out for 3 months, and now the forecast is lower than it would have been. Instead of forecasting 1000 units a month, the forecast now depicts 750 units a month, due to the 3 months of zero sales reducing the average.

The lost sales compensation parameter specifies how much of these lost sales would have been actual sales if stock was available.

A setting of “0%” means we’re assuming no customer came in during that time looking for that item and that if we had stock available, we wouldn’t have made any sales in any case. The forecast will remain at 750 units a month.

A setting of “100%” means we’re assuming sales would have continued as usual if we had stock available. The forecast will return to being 1000 units a month.

A setting of “65%” means we’re assuming that 65% of the lost sales (the forecasted sales that were in place during the stockout period) would have resulted in actual sales if we had stock available. The forecast will be 912 units a month.

In my example above, the lost sales occurred a few months ago. Since then, it has picked up again to 1000 units a month. However, what happens in the scenario where the lost sales are occurring as we speak?

If we apply a lost sales compensation value of 100%, the app will assume we would have sold 1000 units a month had it been available and our forecast will be 1000 units a month.

But is this accurate? Perhaps being out of stock has lost us some customers, which means a reduced forecast would be more suitable. Applying a setting of 100% in this case will result in possibly over-forecasting, and thus over-ordering and excess stock. This is typically used in niche markets where the customer has no alternative when there is no stock.

Question: What is the difference between lost sales compensation and back order percentages?

Answer: Lost sales compensation adjusts your sales history used in the calculation of your forecast (but does not change the actual sales numbers on the enquiry screen). Back order percentages influence your projection tab calculations and orders.

Simply put, lost sales compensation “corrects” your sales history used in the forecast calculation to reflect what you would have sold so that your forecast can be accurate as it is now based on “accurate” sales history. From there, the back order ratio asks “what percentage of my customers who came in looking for this item when I was stocked out will come back when I do have stock? 25%? Okay, now factor that into my next order”.

Lost sales compensation therefore corrects your base forecast (and thus improves your orders) and back order ratio corrects your order and projected orders.

Question: Because of their importance, can I have a setting of “100%” apply to my AH items and a setting of “0%” apply to my CL items?

Answer: No. As this is a global setting, you can not.