Making better use of the data in your inventory system

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