biretail knowledge series 20111125 - manage your stock

8/3/2019 BIRetail Knowledge Series 20111125 - Manage Your Stock

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MANAGE YOUR STOCK

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t WAYTHE+

SMARTTO GROW

WAY

YOUR

BUSINESS

Manage your

Stock


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How much stock do I have?

Two of the most important measures of the amount of stock held by a retailer are Stock

Days and Age of Stock. They are often confused and used in place of the other. This

article will show the correct usage of each measure, the conventional calculation

method and the BIRetail proprietary method of calculating these measures to give more

accurate results.

Age of Stock

This is, in plain English, a measure of how old the stock is. Sales patterns here are

irrelevant all that matters is when the stock was bought. Indeed, the calculation of Age

of Stock does not even require access to sales data.

Let us consider the following purchase patterns:

(For these examples, we assume todays date is 1/11/2011 and that our current stock is

500 units).

Purchase Pattern 1 Purchase Pattern 2

01 -01- 2011 200

01 -02- 2011 200 100

01 -03- 2011 200

01 -04- 2011 200 100

01 -05- 2011 200 100

01 -06- 2011 200 200

01 -07- 2011 200 300

01 -08- 2011 200 200

01 -09- 2011 200 700

01 -10- 2011 200 300

Total 2,000 2,000


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Conventionally, the age of stock is calculated by looking at the total purchases in a

period, calculating a purchase per month figure and using that to derive the Age of the

stock. So, in pattern 1, the purchases were 1,200 units over six months or 200 per

month. Thus, the age of the stock is 2.5 months (500 units divided by 200 purchased per

month) roughly 75 days. BIRetail use a more sophisticated algorithm (that is verycomputer intensive) to calculate a more accurate Age of Stock figure. This is done by

moving backwards through the purchase history till purchase records have been found

for all currently held stock and then doing a weighted average calculation of the age of

the stock.

The results of the Age of Stock calculations can be summarized as follows:

6 Month Purchase Pattern 1 Purchase Pattern 2

Conventional Method

(Calculated exactly)76.7 days 56.9

BIRetail Method 51.1 days 42.4

BIRetails calculation is more accurate as it avoids the main problems with the

conventional method:

1. There is little or no averaging of results BIRetail considers the most recentdata as the most reliable for future predictions. So, the Age of Stock is calculated

using the most recent data possible with as little averaging as possible. This is no

superfluous data used in the BIRetail calculation.

2. The number of days used to do the averaging calculation in the conventionalmethod is subject to judgment and will produce different results if different time

periods are used. In the above table, 6 months wasused to do the averaging

calculation. If however, the averaging was over 3 months, the results would look

as follows:


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Under purchase pattern 1 the 3 month conventional calculation gives us the same result

as the 6 month calculation as there is no variation in the monthly purchase pattern.

However, the 3 month conventional Age of Stock for pattern 2 is considerably less than

the corresponding 6m figure as a lot more emphasis is placed in the period over which

the averaging takes place merely changing the averaging period has had a majorimpact on the result - the results for BIRetail are insensitive to this subjective parameter

and a lot more accurate.

3 Month Purchase Pattern 1 Purchase Pattern 2

Conventional Method

(Calculated exactly)76.7 days 38.3

BIRetail Method 51.1 days 42.4


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Stock Days

This is a measure of how long it will take to sell the current stock. In this calculation,

purchasing data is ignored and only sales patterns are used.

Let us consider the following example:

(For these examples, we assume todays date is 19/08/2011 and that our current stock is

26 units).

Sales Pattern 1 Sales Pattern 2

01 -08-2011 3 1

02 -08-2011 3 2

03-08-2011 3 1

04-08-2011 3 4

05-08-2011 3 2

06-08-2011 3 3

07-08-2011 3 1

08-08-2011 3 3

09 -08-2011 3 2

10 -08-2011 3 3

11-08-2011 3 2

12-08-2011 3 5

13-08-2011 3 3

14-08-2011 3 4

15-08-2011 3 5

16-08-2011 3 4

17-08-2011 3 4

18-08-2011 3 5

Total 54 54


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For the same reasons as above, BIRetail produces results that are:

1. More accurate due to a lack of averaging and use of most current data2. Insensitive to the period used in conventional averaging calculations

Conventionally, the total sales in the period (in this case 18 days) are calculated and

sales per day figure worked out. This is then used to calculate the projected number of

days it will take to sell the existing stock.

BIRetails method, once again very processor intensive, works backwards through sales

data and finds how long it would have taken to sell the existing inventory hence, there

is no judgment involved in what the appropriate averaging period should be.

The results can be summarized as follows:

The conventional and BIRetail method produce the exact same results under the

uniform sales pattern 1. However, under a more realistic scenario, BIRetail produces themore robust result taking into account the surge in recent sales activity. The BIRetail

method, correctly, shows that there is less of a reason to worry about current stock

levels. When sales slow down this will be picked up more quickly using BIRetails

method.

Stock days and Age of Stock are just two of the vast library ofBIRetails calculations and

metrics available to our customers. The same attention to detail and passion to produce

accurate results from customer data is embedded in everything we do.

3 Month Sales Pattern 1 Sales Pattern 2

Conventional Method 8.7 days 8.7 days

BIRetail Method 8.7 days 6.2 days


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About BIRetail

BIin a box

As illustrated below, "BI ina Box" facilitates a rapid-adoption

of Analytics for your business,

improving decision-making and

thus contributing to accelerated

business growth.

Customers

Call for Demo

Divya Srivastava : +91 80 43-010-010,

Mob: +91 9008525308

BIRetailis the only "Retail-ready" Analyticssolution available on theCloud

Address

#33 Millers Tank Bund Road, Bangalore

560052, India

Phone: +91-80-43 010 010

Website: www.biretail.com

Email: [email protected]

biretail knowledge series 20111125 - manage your stock

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