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Turning a demand forecast into reorder points and stock cover

Takes the forecast distribution together with the supplier's observed lead-time variability and sets, per item and per location, the level at which an order is raised and how much cover is held above expected demand — then reports which lines are covered at the service level the business actually chose and which are not.

Effort
Days of work
Skill level
Some technical skill
Organisation size
Small business
Value
Cost saved, Risk reduced

Tools named for this

  • A quantile forecast of demand over the replenishment lead time
  • A lead-time model built from purchase-order receipt dates rather than from the supplier's quoted lead time
  • A worksheet the planner can override line by line, with the override and its reason kept

What to check before you ship it in India

  • Cover is driven by lead-time variability, and most ERPs store the quoted lead time rather than the received one. Fed the quoted number, the calculation understates variability exactly where the supplier is least reliable, which is the only place it mattered.
  • A service level is a business decision about which stockouts are tolerable. Set once in a configuration file and never revisited, it becomes an unowned number that quietly decides how much working capital sits on the floor.

Sources

Every claim on this page traces to one of these, on the date it was read.