Stock Cover is the amount of an item the company has in on-hand inventory – expressed as days, weeks, or months’ worth of stock.
This provides and indicator of which items should be re-stocked first, and is calculated by using the following calculation:
Stock Cover = (Current Stock x Time Periods per week) / Forecast Annual Usage
For example, a company has 500 units of item ‘A’ in stock, and it expects to consume 10,000 within a year. What is the stock cover in weeks?
Stock Cover = (500 x 52 (weeks)) / 10000
= (26,000) / 10,000
= 2.6 weeks of stock on hand
In order to make good decisions on levels of inventory we also need to consider which scheduling system we will work:
- Backward;
- Forward; and
- A mix of both.