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MANAGE YOUR STOCK

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:

Purchase Pattern 1
01 -01- 2011 01 -02- 2011 01 -03- 2011 01 -04- 2011 01 -05- 2011 01 -06- 2011 01 -07- 2011 01 -08- 2011 01 -09- 2011 01 -10- 2011 200 200 200 200 200 200 200 200 200 200 2,000

Purchase Pattern 2
100 100 100 200 300 200 700 300 2,000

Total

(For these examples, we assume todays date is 1/11/2011 and that our current stock is 500 units).

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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 very computer 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 Conventional Method

(Calculated exactly)

Purchase Pattern 1 76.7 days 51.1 days

Purchase Pattern 2 56.9 42.4

BIRetail Method

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 recent data 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 conventional method is subject to judgment and will produce different results if different time periods are used. In the above table, 6 months was used to do the averaging calculation. If however, the averaging was over 3 months, the results would look as follows:

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3 Month Conventional Method

(Calculated exactly)

Purchase Pattern 1 76.7 days 51.1 days

Purchase Pattern 2 38.3 42.4

BIRetail Method

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 major impact on the result - the results for BIRetail are insensitive to this subjective parameter and a lot more accurate.

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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:

Sales Pattern 1
01 -08-2011 02 -08-2011 03-08-2011 04-08-2011 05-08-2011 06-08-2011 07-08-2011 08-08-2011 09 -08-2011 10 -08-2011 11-08-2011 12-08-2011 13-08-2011 14-08-2011 15-08-2011 16-08-2011 17-08-2011 18-08-2011 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 54

Sales Pattern 2
1 2 1 4 2 3 1 3 2 3 2 5 3 4 5 4 4 5 54

Total

(For these examples, we assume todays date is 19/08/2011 and that our current stock is 26 units).

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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 data 2. 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: 3 Month Conventional Method BIRetail Method Sales Pattern 1 8.7 days 8.7 days Sales Pattern 2 8.7 days 6.2 days

The conventional and BIRetail method produce the exact same results under the uniform sales pattern 1. However, under a more realistic scenario, BIRetail produces the more 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 of BIRetails 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.

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About BIRetail

BIRetail is the only "Retail-ready" Analytics solution available on the Cloud

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As illustrated below, "BI in a Box" facilitates a rapid-adoption of Analytics for your business, improving decision-making and thus contributing to accelerated business growth.

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