Determining the period that existing inventory will satisfy anticipated demand involves a mathematical process. This process typically divides current inventory levels by the forecasted average demand per unit of time. For example, if a business possesses 500 units of a product and expects to sell 50 units per week, the calculation would indicate that the current stock is sufficient for 10 weeks.
The knowledge derived from this computation enables proactive inventory management. Accurate foresight facilitates informed purchasing decisions, mitigates the risk of stockouts, minimizes carrying costs associated with excess inventory, and optimizes resource allocation. Businesses have long employed this method, adapting it to various industries and evolving with the sophistication of forecasting models and inventory control systems.
