Inventory management involves tasks and activities related to a company’s products for sale. The fill rate measures a company’s ability to meet demand with available inventory. Formulas for calculating the fill rate and safety stock include lead time, logistics, and inventory turnover. Accounting ratios such as turnover and inventory period also play a role.
Inventory management includes a number of tasks and activities centered on a company’s products for sale. The fill rate represents the company’s ability to meet current demand with available inventory. Accountants and managers are often responsible for determining how much inventory you need to have on hand at all times. A stockout occurs when the fill rate exceeds the current stock. This occurs when a company does not have enough products available to meet consumer demand.
There are many different formulas for calculating the stock fill rate. A closely related inventory formula is the safety stock calculation, which represents the inventory available to mitigate or eliminate stockouts. Companies use these technical math formulas to see how this rate compares to their safety stock calculation. The information needed to complete the safety stock and fill rate formulas includes lead time, logistics, inventory turnover, and other data specific to the company’s inventory process. Companies often calculate these formulas on a monthly or quarterly basis.
A basic formula for the stock fill rate is to convert sold goods into a percentage of available goods. For example, a company stocks 100 widgets for sale; In the next 30 days, the company sells 73 widgets. The company’s inventory fill rate is 73%. Essentially, the formula means very little by itself. This gives rise to more technical inventory formulas that provide more information about safety stock, logistics, and other factors that affect a company’s inventory process.
Accounting ratios can also play a role in calculating this rate. This includes turnover and stock period. Inventory turnover tells the company how many times a year a company sells all of its inventory. The basic formula is to divide average inventory into cost of goods sold; to find average inventory, add starting inventory to ending inventory and divide by two. A high number indicates that the company sells its inventory several times a year, requiring high inventory levels to ensure a good fill rate.
Inventory period is the number of days of inventory currently available. This helps the company get into the inventory fill rate formula. The inventory period formula is average inventory divided by cost of goods sold, with average inventory being beginning inventory and ending inventory divided by two. A high ratio indicates that a company has several days of inventory available for sale. This means that the safety stock must be larger.
Asset Smart.
Protect your devices with Threat Protection by NordVPN
