Navigate to: Settings > Configuration > Forecast
Definition
Definition
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 months where there was a stockout of at least one day. Stockout day counts are calculated by the app, not imported from the ERP system. Because this calculation starts when the app goes live, this history must build up over time. The lost sales quantity is based on the forecast history calculated for that month.
Use case
Use case
This setting should be applied conservatively.
A setting of 100% can help reduce the risk of under-forecasting, but it assumes that all lost sales would have occurred if stock had been available. This may not be realistic if customers changed suppliers or stopped buying due to repeated stockouts.
A setting of 0% may lead to under-forecasting and recurring stockouts.
A setting of 40% – 50% is generally recommended as a balanced range.
Because this is a global setting, it applies to all items in the business. It is important to understand your business as a whole before deciding on a value:
What are the majority of demand types across your items?
What do the model stock and fill rate indicate?
Is your biggest challenge excess stock or stockouts?
In short, would a stock-out or an excess be most detrimental to the business?
Based on your answers, you can select your setting:
If a stock-out is more detrimental, set the parameter to between 80% and 100%.
If excess stock is more detrimental, set the parameter to between 10% and 30%.
If you are on the fence, set it to between 40% and 50%.
Explanation
Explanation
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.
FAQs
FAQs
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 Inquiry 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 the 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 cannot.
Forget about these 👇 😞 😐 😃 Have your say here!