Below is an explanation of how the recommended order date is calculated, along with the equation and a couple of examples.
Step-by-Step Explanation
Calculate Available Inventory:
In this scenario, Available is defined as:
This gives you the total inventory that’s actually available for sale.
Determine Daily Sales (SaleVelocity60Days):
The SaleVelocity60Days is the average daily sales over the past 60 days.Calculate Expected Sales During Lead Time:
Multiply the average daily sales by the LeadTime (in days). This gives the number of units expected to be sold during the lead time:
Compute the Surplus Inventory:
Subtract the expected sales during the lead time from the available inventory:
Convert the Surplus into Additional Days:
Divide the surplus by the average daily sales:
Determine the Recommended Order Date:
Add the additional days to the current date:
The Equation
Where:
onhand, incoming, pending are used to calculate Available inventory.
SaleVelocity60Days is the average daily sales over the last 60 days.
LeadTime is the time (in days) it takes for a new order to arrive.
Examples
Example 1:
Inventory Data:
onhand: 100 units
incoming: 20 units
pending: 10 units
Available = 100 + 20 − 10 = 110 units
Sales and Lead Time:
SaleVelocity60Days: 5 units/day
LeadTime: 10 days
Calculation:
Expected Sales During Lead Time = 5 units/day × 10 days = 50 units
Surplus = Available − Expected Sales = 110 − 50 = 60 units
Additional Days = Surplus / SaleVelocity60Days = 60 / 5 = 12 days
Result:
Example 2:
Inventory Data:
onhand: 200 units
incoming: 0 units
pending: 50 units
Available = 200 + 0 − 50 = 150 units
Sales and Lead Time:
SaleVelocity60Days: 10 units/day
LeadTime: 8 days
Calculation:
Expected Sales During Lead Time = 10 units/day × 8 days = 80 units
Surplus = Available − Expected Sales = 150 − 80 = 70 units
Additional Days = Surplus / SaleVelocity60Days = 70 / 10 = 7 days
Result:
This approach helps determine the last day you can wait before placing a new order, ensuring that the new stock arrives right when you’re about to run out.