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KNOWLEDGE LIBRARY

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27Jun

Warehouse Occupancy Percentage

Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their...

02Jun

Efficient Procurement Inventory

Efficient procurement inventory (EPI) is often required to realize steep discounts when a special opportunity...

02Jun

Inventory Carrying Rate

The inventory carrying rate (ICR) is the percent of the unit inventory value used to...

26Jun

Inventory Activity Profiling & Data Mining

Suppose you were sick and went to the doctor for a diagnosis and prescription.  When...

27Jun

Inventory Performance Measures

Inventory performance measures include financial, productivity , quality, and response time indicators for evaluating the efficiency and...

Shortage Factor

The shortage factor is the % of an item’s unit selling price (USP) that is lost in the event of a stockout and subsequent lost sale. It is used to compute the lost sales cost. For example, if the shortage factor is 20% and the item sales for $100, then the lost sales cost per unit for the item is 20% of $100, or $20. If the shortage factor for an item is 300% and the item sales for $1000, then the lost sales cost per unit for the item is $3000. It is a judgment factor that a multi-functional team can decide. The shortage factor is highest when there is limited ability to substitute, intense competition, the item is very popular, and the customer is very popular.

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