A critical inventory metric: projected inventory level

With constant streams of data being collected by companies daily, planning for the future is no longer as mysterious as it once was. But it is not a matter of having data that makes forecasting easier; instead, it depends on how the many layers of data are collated and analyzed. When it comes to managing inventory with a software solution, it is critical to establish inventory metrics that drive success for the present and future — making projected inventory level a crucial area to monitor.

Read on to learn what projected inventory level is, how to calculate it and what the benefits are...

What is projected inventory level?

Projected inventory level (PIL) is a forecasting technique used to determine the inventory needed to fulfil future orders. This method is a necessary addition for businesses that want to get a better sense of the supply chain.

American Metals Supply, an independent wholesaler based out of Springfield, Illinois, is utilizing PIL in their database to gain better visibility into their inventory processes. By feeding this information into a dashboard that shows both current and projected inventory levels, AMS can operate with confidence that they will have on hand what they need to meet their customers’ demands — even during a time when the business climate is subject to rapid change.

How to calculate projected inventory level?

It’s a straightforward formula: Inventory On Hand (OH) + Open Purchase Orders (PO) – Open Sales Orders (SO)

Take the inventory you have on hand at the end of the day, plus all inventory inbound to your system. Then, subtract the outbound inventory from that amount to get the PIL. With the right software solution, this is a simple calculation that can be plugged in and immediately shows results.

3 benefits of knowing PIL

With a powerful inventory management software that shows PIL, you’ll reap benefits across the entire company instead of just in the warehouse.

One such benefit is customer satisfaction. Having a reliable technique to forecast means your warehouse will always be stocked with necessary inventory — helping customers avoid long waiting periods due to items being on back order. Brandon Gregory, the supply chain manager for American Metals Supply, knows the importance of PIL when it comes to customer satisfaction. “We’ve always been a disciplined and numbers-driven business, so we are spending a lot of time in Phocas building scorecards, running reports, and tracking AR and inventory…all of this will help us react quickly to the changing climate and the needs of our customers.”

Understanding PIL also helps with improving cashflow and savings. When you understand what inventory is essential and what is collecting dust on the shelves, it becomes much easier to free up dollars by only purchasing what is needed.

Finally, knowing projected inventory levels means you can better negotiate supplier terms. Planning ahead is always beneficial, and that holds true when it comes to restocking inventory. When you have a better sense of what inventory you need in the future, it can help you partner with your suppliers to purchase the correct amount of materials and potentially arrive at a more favorable price point.

PIL is am inventory metric that can have a profound impact as soon as it is integrated into a database. While using PIL to get a clearer view of inventory is important, having the right software to leverage it can be even more important. Not just for inventory, but for operations companywide, the right BI solution can be your competitive advantage.

Pull all the pieces together with the right BI solution

This increased visibility into the warehouse doesn’t have to come from just PIL. With a powerful business intelligence (BI) solution like Phocas, managing inventory becomes simplified. Leverage the solution to see how inventory is performing as a whole, or in more specific areas by breaking it down by territory. Or, use it to free up cashflow in another way by gaining a clearer picture of what is over or under-stocked, and how purchasing should be altered to fix it.

Phocas lets you dive into your data and answer your questions. Our data analytics solution is designed so that anyone can pull meaningful information from the data they’ve already collected without wasting valuable time. Share results throughout the company with customizable dashboards that make collaboration easy and informative.