What is 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.
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?
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
Formula for Forward Stock Cover
Forward Stock Cover = SOH ÷ Average Forward COGS
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 deliver 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
Forward Weeks of Supply = SOH ÷ Average Forward COGS
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.
Thank you for reading this article on Forward Cover. We recommend the below free resources as well:
- Inventory Management Guide
- Sell Through Rate
- Aging Stock
- Inventory shrinkage
- Inventory Turnover Rate
Read more articles on Merchandising or join the academy and take our in-depth course on Merchandising & Inventory Management, which shows you the best practices and the different reports to generate and use to manage inventory.