Don Johnston

Days Cover

Converting a quantity (e.g. stock on hand) to the number of days cover it provides is not quite as simple as dividing the quantity by the average demand per day.

Consider an item which moves, on average, once per year and which is out of stock. The fact that item is out of stock does not mean that there are no days cover. There is no shortage until a customer wants the item. On average, that time is 6 months away so no stock represents 6 months cover.

For this reason, the number of days cover provided by a given quantity is obtained by adding 0.5 to the quantity and then dividing by the average demand per day. In the above case, the demand per day is 1/365=0.00274 so the number of days cover provided by no stock is

(0 + 0.5) / 0.00274 = 182

i.e. 6 months

The number of days cover provided by a stock quantity of 1 would be

(1+0.5) / 0.00274 = 547

i.e. 18 months

To convert a number of days cover to the corresponding quantity (e.g. of stock), multiply by the demand per day and then subtract 0.5. For example, in the second example given above, in which the demand rate is 1 per year or 0.00274 per day, the quantity of stock which would provide 547 days (18 months) cover is

547 × 0.00274 – 0.5 = 1

 

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      I will be covering many more topics in due course. With regard to other articles on same topics as my posts or articles on any other topics which you are interested in, search engines are your friends. Also, you might like to join appropriate Linked In groups. I am open to suggestions as to what inventory management related topics I should write about.

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      A number of posts I intend to write will refer back to this one. The reason is that failure to calculate the number of days cover in the manner I have described will cause problems with many inventory management calculations, especially for slow moving items.

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      There are some things which I have started doing to make the blog more useful to readers. One is the Monte Carlo inventory management simulator (Click on the “Simulator” tab). From now on, when I give formulae other than very simple ones, I intend to provide online calculators for applying them. I am about to start writing open source software to help readers to apply some of the techniques described in this blog.

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      Starting a blog is not difficult. There are several blogging platforms available. Computer programming skills are not required. This blog uses WordPress.

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