A lost sale occurs when a customer wants to purchase an item, but there is insufficient stock to fulfill the request and the customer does not want to place a backorder or calls to cancel an order that has been placed. The system can calculate out of stock periods, estimate the lost sales during these periods, and increase demand to prevent future lost sales.
For example, an item is out of stock for one month out of the last six months. During the last six months, the product sold an average of 100 units per month when the item was in stock. The system estimates that 100 more could have been sold in the month that the item was out of stock.
The system also provides a lost sales parameter which helps prevent accumulating surplus inventory. For example, a run on inventory causes 30 days supply of an item to sell out in one day. You do not want the system to estimate that 30 days supply could be sold in the 29 days the item was out of stock.
Therefore, the system selects the lesser of two values when calculating lost sales and increasing an item's demand:
The number of days the item was out of stock during the forecast period.
The lost sale parameter multiplied by the number of days in the forecast period. That is, use a percentage of the forecast period as the maximum number of days to count as lost sales days.
For example, in the last 180 days, an item was out of stock for 30 days. The lost sales parameter is 50%. 50% of 180 days is 90. Because 30 is less than 90, the system uses the 30 out of stock days to calculate lost sales.
On the other hand, suppose there was a run on inventory: in the last 180 days, the item was out of stock for 150 days. A lost sales parameter of 50% limits the system to using 90 days of the forecast period to calculate lost sales.
When setting the lost sales parameter, consider whether the item sells often and you do not want to be out of stock. For fast-moving items, the system uses shorter forecast periods, so use a higher lost sales parameter. The system is more likely to select the actual out of stock days and increase demand.
On the other hand, for slow-moving items, the system uses longer forecast periods, so use a lower lost sales parameter. If it is acceptable for the item to be out of stock, the system is more likely to select a percentage of the forecast period and decrease demand.
Preventative measures to eliminate lost sales through inventory parameters differ from tracking lost sales through the unquality event tracking (UET) system. Eliminating lost sales affects the forecast demand calculation, automated purchasing, and transfers. Tracking lost sales is a sales analysis tool.
See Also:
How the System Calculates Lost Sales