What is Stock Cover?
Stock cover is the estimated timeframe that highlights how long a company’s current stock will last at a given order rate. It is also dubbed as inventory cover. Companies calculate stock cover daily, monthly, or weekly, depending on the mentioned factor.
Significance of Stock Cover in an E-commerce Shipping and Delivery
With stock cover data, a seller can mitigate inventory shortfall during peak order hours and even fuel a well-oiled product stocking cycle. Some other significant benefits of stock cover are:
- Minimizing inventory shortfall: A company can use this metric and historical order data for better forecasting, thus minimizing the chances of a future inventory shortfall.
- Periodic stocking cycle: Sellers can use historical data of stock cover and forecasting to automate the restocking of their products periodically. It allows the seller some breathing room, while one can also be sure to always have inventory.
Prerequisites of Stock Cover and How It Works
The efficiency of a computed stock cover depends on the accuracy and consistency of the historical data for order rate. A merchant is required to have an idea about the inventory, along with an estimated order rate.
Stock cover formula: Stock available / Average product demand or order rate.
One way to increase the estimate’s accuracy is to compile the historic order influx data over a period and use it instead of the order rate.
Use Case with Stock Cover
For example, a Filipino manufacturer holds 10,000 table fans and has a monthly order rate of 1,000 units, 3500 units, and 500 units, respectively, from three different retailers in Singapore. Based on the mentioned metric, they compute that the stock cover with the current inventory will last for only two months.