Thursday, 15 December 2016

The concept of stock forward cover is explained



STOCK FORWARD COVER is the amount of stock required at any one point in time that will permit the forward sales budgets to be achieved. The measurement is typically in weeks and can be expressed as the amount of weeks that is based on the sales plan over the time that it will take for the stock to be exhausted. 
Stock levels will essentially be higher or lower over time depending on seasonal trends, promotional launches, markdown activities and holiday events. The fluctuations will be reflected in the sales plans and as a result the inventory level will fall and rise in empathy to the sales plan. The target number of weeks can remain reasonably consistent throughout the year and will really only need to be adjusted where situations deem it necessary such as for factory closures over holiday periods and in the event of build up for new initiative launches such as store openings.
The appropriate number of weeks selected will be determined based on historical data, the strategy intents and the nature of the product. Properties such as fashion ability, amount of sizes, lead times from supplier for replenishment, the number of deliveries and turnover of individual stores will have an influence over the number of weeks cover chosen. Commonly the more fashionable the merchandise is, the lesser the number of weeks will be required as the time it is on offer may well be shorter before the next input of new replacement styles in comparison to the basic continuity commodities.
Larger outlets stock tend to sell out at a quicker rate and have greater volumes of sales and therefore are able to survive on less weeks cover compared to the smaller stores with smaller turnovers which demand a less frequent replenishment and consequently require more weeks cover in order that full availability of all colours and sizes are on offer at any one point in time.
The proximity of stores to the replenishment centres will also have an influence on the stock holding requirements and invariably the rural stores far from the distribution points may receive less frequent deliveries which take longer to reach them and subsequently these stores will have to have more weeks cover than their relations in the city centres who are closer to the distribution centres.
The principle, however, remains to keep the forward cover as low as possible in order that the stock will be replaced more regularly and thereby is able to generate profit more frequently. 


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