Retail Dogma

# RETAILDOGMA

THINK LIKE A MERCHANT

# Forward Stock Cover

Forward stock cover measures how long the current stock on hand will cover future forecasted sales periods.

This measure is used in inventory management to ensure product availability and adequate stock on hand coverage.

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It is also used during the buying budget calculation to ensure the inventory ordered is enough to cover sales for the budgeted/forecasted period and by the end of this period there will be enough forward stock cover, so the stores will not be empty.

## How to Calculate Forward Stock Cover?

To calculate forward stock coverage you will need the following information

• Current Stock on Hand at Cost Value (SOH)
• Average COGS for the upcoming months (Forward COGS)

To get the average COGS of the upcoming months you simply get the COGS for your budgeted sales for the coming 6 months and then divide by 6, or the coming 12 months and divide by 12.

Note: We always prefer to use 6 months for stock planning, but it is not a fixed number

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## Formula for Forward Stock Cover

Forward Stock Cover = SOH ÷ Average Forward COGS

#### Example

Current stock on hand at cost : 25,000 \$

Sales for coming 6 months: 35,000\$

Margin for the coming 6 months: 45%

COGS for the coming 6 months = 35,000 \$ x (1-0.45) = 19250 \$

Average COGS for the coming 6 months = 19250 ÷ 6 = 3208 \$

Forward stock cover = SOH ÷ Average Froward COGS = 25,000 \$ ÷ 3208 \$ = 7.8 months

The result, here 7.8 months, simply means that the current stock on hand is enough to cover sales for the coming 7.8 months.

## Forward Weeks of Supply

In our example we have calculated the stock cover in months, but to calculate the forward weeks of supply (FWOS) you simply apply the same formula and replace months with weeks

#### Example:

Forward Weeks of Supply = SOH ÷ Average Forward COGS

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To get the average COGS of the upcoming weeks you simply get the COGS for your budgeted sales for the coming 8 weeks and and then divide by 8 (could change the number of weeks)

## Forward Weeks of Supply (FWOS) vs Weeks of Supply (WOS)

The main difference between weeks of supply (WOS) and forward weeks of supply (FWOS) is that weeks of supply calculates the stock cover based on past sales average, while the forward weeks of supply is a forward looking measure that uses the future (budgeted/forecasted) sales in the calculation.

While the WOS is easy to calculate and doesn’t require any projection for sales in the future, it is the FWOS that actually matters. After all, the main reason we calculate this figure is to know whether or not we have enough stock to cover upcoming sales. Since the coming sales trend could be totally different from the past sales, due to seasonality for example, the FWOS is the preferred figure to track.

## Important Note

Having a good total forward stock cover does not mean you are not missing sales opportunities. This is because you might have enough quantities but the popular sizes or popular styles have actually sold out.

That’s why you need to look deeper in your inventory reports and filter by quantity or sell thru and see where you have shortages and whether or not you can order replenishment for these.

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Then you will need to adjust your buying going forward, so that you don’t end up selling out on these items fast.

## Bottom Line

Forward stock cover or forward weeks of supply are measures that should be used together with other inventory reports, such as aging inventory report & sell through report to monitor the state of inventory for a retail or e-commerce business and guide on any corrective actions that need to be taken.

#### Further Readings on Stock & Inventory Management

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