DAYS SUPPLY

[FRANK VENTRESCA]

I'M TRYING TO COME UP WITH A FORMULA FOR FIGURING DAYS SUPPLY, ANYONE HAVE SUGGESTIONS OR ANY ACCURATE FORMULAS

[Chuck Hartle]

Hi Frank,

If you are trying to figure out your days supply for your total inventory here is the formula as I know it:

Take your "Cost of Sales" YTD and
divide by 11 months (if YTD is through
November)

This will give you your average monthly
cost of sales. Take your month end inventory
total from November and divide it into
your average Cost of Sales. Then Multiply it
by 30 for the days supply.

Here is an example of a store with sales
through October (10 Months)

YTD Cost of Sales = 882329
Avg Monthly COS = 882329/10 = 88233
October Inventory = 149895
Inventory/COS = 1.70

Days Supply = 1.70 x 30 = 51 days

Some people look at it at as 1.7 months supply and others will calculate it based on the number of working days. For instance, if you are closed on Saturday and Sunday you could calculate this as:

1.70 x 21 = 36 days supply

Our experience shows that depending on whether you are a domestic dealer or import dealer you ideally want to be around 45-60 days supply.

Let me know if you are looking for something else.

Thanks,

Chuck Hartle'

[Farfinator]

Frank,
If instead, your trying to figure out parameters for ordering criteria, the basic formulas look like this:

Order Interval(The frequency of orders placed to manufacture)+ Review time (time it takes you to prepare your stock order)+Lead time(time it takes from submital to receipt to get your parts)=Base level of Days Supply

Base Level + Reserve Level(somewhere between 50-150% of base level)=Best Reorder Point

Best Stocking Level=Starts at 25% more than BRP or BRPX1.25.

You should monitor your fill rates and level of service and adjust as necessary to suit your needs.

For example:You might find narrower parameters might satisfy your A parts(or fast moving stuff)and keep investment down, particularly if you are on daily stock order, Where as bolder parameters might be needed on the C and D stuff, so you are not caught short.

Lastly, there is EOQ(economic order quantities), which can be imposed on the entire scheme. It has its pro's and con's. Basically, its supposed to progressively bolster purchase quantities of the small stuff to 1.minimize order frequency of the small junk,2.minimize the costs of frequent stocking of the small junk, 3.minimize probability of stock outs this stuff, 4. and take fuller advantage of any quantity discounts take may be applicable, while offsetting this additional investment by trimming the investment in the big dollar stuff...You'll have to decide whether its right for you.

Don't know whether this was what you were looking for, but I hope it helps.