When discussing days of supply*, a point worth considering is its value to you as a retailer. Of course, that leads to the question of what kind of value you can expect. For one, there is the value of having firm control of it. That's because failing to control it can see you paying dearly. And we're not only talking about money. It can also damage any reputation that you might have built for your store.
Failing to control it can lead to fewer customers visiting your store because they suspect (sometimes rightfully so) that you won’t have what they need when they want it. Fortunately, you can take action to curb such thinking - this is all in your control. It’s now up to you to do something.
What do we mean when we talk about days of supply?
Before we can explain the value of days of supply - DOS for short - we must establish and unpack it for what it is.
What do we mean when we talk about days of supply? It's fairly straightforward to understand.
In simple terms, DOS is the number of days you can expect a product to last before you restock your shelf. And by the way, it’s not a guesstimation or pulled out of thin air. It considers numerous factors like individual unit movement and product and fixture dimensions to give you an accurate number.
There are also various circumstances that influence it, including:
- Out of stocks; and
- In-store cross-promotions.
As for its value (and importance), you can't take it for granted. Why? As we've already mentioned DOS is a measure that you can use to know when to replenish your stock. But it's more than that. By being aware of it, you'll know how often your stock turns, which further influences your inventory plans.
So what happens if you don't have control? Will it really be that bad? The short answer is yes. Unequivocally.
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By not having control of your days of supply, you can find your store/s running out of stock. Why? Because without data, you won't know how quickly your products sell out. You can guess, yes, but you won't have an accurate understanding.
For example, one product might be a fast mover while another is slow to sell out. Before you know it, you could have gaps on all your shelves. On the other hand, you won't know how much to order or reorder to meet consumer demand.
You could even find yourself overcompensating and running the risk of stocking your store/s with too much of the wrong product. And that will cost you money that you shouldn't need to spend.
How do you calculate days of supply?
Just like the definition of days of supply is easy to understand, so too is its calculation.
Here it is:
If we were to expand on that, it would be to explain that capacity refers to the number (total count) of units of a product that you have on your planogram.
Meanwhile, units sold per day is self-explanatory - it’s daily movement, which adds to your weekly movement.
As for the formula, it allows you to measure three specific aspects of your retail business, namely:
- The days of supply for your individual products;
- The average days of supply for your shelf and gondolas; and
- The overall days of supply for your store.
So what does that look like in a practical example? Here you go:
As shown in the image below, Cereal Brand A has a product on the shelf. The weekly movement for this product is 54.08 units. It also has a DOS of 0.91 days. Let's say it has one facing and the shelf capacity is seven. That means that on average, the product with its current facing will sell 54 units per week. You'll also have enough stock on the shelf to last less than a day.
Should you increase the number of facings, and thus the capacity, your DOS will increase too. If you wanted to increase your facings to three, your capacity would jump to 21, and your DOS would increase to 2.72, as seen in the image below.
That means you won't need to restock your shelf every day to keep up with demand. Of course, you do need to be careful that you don't overstock your shelf. Because doing that can turn an aesthetically pleasing and easy-to-shop shelf (and aisle) into a confusing mess.
How will you know if your days of supply are accurate?
By now, you know about the days of supply, why it's important and how you can calculate it. But how do you know if your calculation is accurate?
Simple. Your DOS is reliant on the accuracy of a few specific aspects. Without the accuracy on the below, you'll have a skew DOS, which will affect everything else.
These aspects include:
Capacity: This includes both your product and fixture dimensions. Knowing them allows you to understand how many products can fit on your shelf without it being over-congested.
Number of Units Sold: Since the formula for DOS relies on how many units you sell per day, it goes without saying that you need to know the quantity of the items that sell. Again, without this, it'll skew your data, which can lead shelf that is over capacity.
Period: As with any analysis work you want to complete, you need a specific period. During this period, you can work out how many units you sell.
When space planning, it's vital to align your DOS across your planogram as much as possible. This averaging out allows all products to sell out at the same rate. That reduces the possibility of unnecessary gaps appearing on your shelf and means your merchandisers (or whoever you assign shelf replenishment duties to) won't need to restock your shelves too often.
Understanding days of supply and how to use it correctly can help you set up your retail business for success. And it's not just in the short-term either. It's just as relevant to understand no matter where you are in your retail journey.
Are you looking for advice or need a category management solution that can help you maximise your sales potential while also pleasing your customers simultaneously? Book your complimentary consultation with a DotActiv expert today and we'll show you how you can achieve that and more. You can also browse through our various software editions and services on our online store.
*This article was updated on 15 September.