RETAIL GLOSSARY

# Weeks of Supply (WOS)

A measure of how long the current inventory will last at the current sales rate, calculated by dividing the inventory on hand by the average weekly sales.

## What is Weeks of Supply (WOS)?

Weeks of Supply (WOS) is a supply chain metric that quantifies the number of weeks a retailer's inventory is expected to last based on current stock levels and sales rates. It is calculated by dividing the current inventory quantity by the average weekly sales rate. WOS is a valuable indicator for inventory management, helping retailers optimise their stock levels, avoid overstocking or understocking, and meet customer demand effectively.

## How WOS works

• Data Collection: Retailers collect data on their current inventory levels and average weekly sales or usage rates for a specific product or product category. The sales data is often based on historical figures or can be calculated using recent sales data.

• Calculation: The WOS calculation involves dividing the current inventory quantity by the average weekly sales rate. The formula is: WOS = (Current Inventory Quantity) / (Average Weekly Sales Rate) This calculation provides the estimated number of weeks it would take to deplete the current inventory at the current sales rate.

• Interpretation: A higher WOS value suggests that there is excess inventory relative to current sales rates, which may indicate overstocking. Conversely, a lower WOS value may indicate understocking, implying that inventory may need to be replenished. Retailers use WOS data to make informed decisions about replenishment orders, inventory adjustments, and stock levels to optimise their supply chain and ensure products are available when customers demand them.
WOS is a valuable tool for retailers to balance inventory levels, reduce carrying costs, avoid stockouts, and prevent overinvesting in inventory that doesn't move quickly. It helps maintain an efficient supply chain while meeting customer needs.

## Pros of WOS

1. Optimised Inventory Levels: WOS helps retailers maintain an optimal balance of inventory, ensuring that they neither overstock nor understock products. This efficient inventory management reduces carrying costs associated with excess inventory and minimises the risk of stockouts, ensuring products are available when customers need them.
2. Improved Demand Forecasting: WOS is a valuable tool for evaluating the accuracy of demand forecasts. By regularly monitoring WOS and comparing it to forecasted sales, retailers can adjust their demand forecasting models and refine their supply chain strategies to align with actual customer demand more effectively.
3. Enhanced Cash Flow and Profit Margins: Efficient inventory management based on WOS can lead to better cash flow management, as capital is not tied up in excess inventory. This can improve profit margins by reducing carrying costs, preventing costly stockouts, and minimising the need for discounting or clearance sales of overstocked items.

## Cons of WOS

1. Limited in Dynamic Markets: WOS calculations are based on historical data and average sales rates, which may not account for sudden market changes or seasonal fluctuations. In dynamic markets, where demand can change rapidly, relying solely on WOS may lead to suboptimal inventory levels.
2. May Not Consider External Factors: WOS does not always factor in external variables such as economic conditions, weather events, or unexpected supply chain disruptions. Retailers need to supplement WOS with additional demand forecasting and risk management strategies to address these factors.
3. Complex Product Portfolios: Retailers with diverse and complex product portfolios may find it challenging to apply WOS uniformly across all products. Different products may have distinct demand patterns, shelf lives, and supply chain constraints, making it necessary to complement WOS with other inventory management techniques for specific categories or products.

## FAQ

Below you will find answers to common questions
How can we use Weeks of Supply (WOS) to determine the right reorder point for our inventory and prevent stockouts while avoiding overstocking?
WOS can help you set a reorder point that aligns with your inventory needs. Calculate WOS for each product by dividing the current inventory by the average weekly sales rate. Once you have the WOS, set your reorder point to coincide with the desired number of weeks of supply you want to have on hand when you place an order. This ensures that you maintain adequate inventory levels without overstocking.
Our sales patterns fluctuate seasonally. How can we effectively use WOS in such dynamic situations?
Seasonal fluctuations can impact the accuracy of WOS calculations. To address this, consider calculating WOS separately for different seasons or periods based on historical data. For products with seasonal demand, adjust your inventory levels and reorder points accordingly during peak seasons. WOS remains a valuable tool, but it should be supplemented with in-depth seasonal demand analysis to accommodate these fluctuations.