Order Management System (OMS)

# Probability Of Stockout: Formula And Calculation

The probability of stockout is considered to be one of the most important because it directly affects the warehouse management system. This parameter will help you get an overview of the inventory status of your business, which will also help you have grounds and information to understand to make corrections and changes. more suitable change in the future.

Therefore, understanding the probability and knowing how to calculate it will definitely be a great advantage for the business you are managing.

Contents

## What is the definition of the stockout probability?

Probability Of Stockout as the name implies is the percentage that the warehouse is likely to be out of stock and unable to fulfill new orders. To calculate the probability of stockout, you can calculate metrics related to order frequency, order interval, and time between orders.

Your stockout probability will reflect the quality of your current volume management. You can say that you have a suitable stock volume for market demand if the probability of stock is low. In the case of high availability, it can be due to a sudden increase in market demand or due to incorrect prediction of market demand by the market management leading to a shortage of stock.

Understanding the proportion of risks your business faces being forced out of production will help you devise the right strategies to mitigate this risk. From there, it helps the company develop stably.

And understanding the probability of stockout will help you have a reasonable business plan in the future, optimizing the profits that the business can achieve.

The likelihood of stockout will be affected by three factors, that is:

• Volume of order
• Stocking frequency
• Cycle time

Each of the above factors will have a direct influence on the calculation of the probability of stockout. For example, high customer demand means an increase in orders leads to an increase in inventory. In addition, inventory frequency and cycle time will play a role in helping you understand how quickly your inventory will be empty with these orders.

## StockOut Probability Formula

The Stock Out Probability is calculated using the calculation below.

 PS = ES / ED * 100

Where PS denotes the likelihood of a stock out ( percent )

The predicted stock out is denoted by ES.

The expected demand (ED) is the number of requests.

Simply divide the number of stock out by the number of demand requests and multiply by 100 to determine the stock out likelihood.

## Stockout probability calculation

Estimated stock calculations are based on the following information about materials and locations:

Calculating the probability of stockout is based on the following information about the location and data:

Upcoming market demand forecast – This is a number that calculates the number of times a material has been moved stockout. This is measured in units by month.

Days to Delivery Time – The average time (calculated by the number of days) that the warehouse is out of stock until items are shipped.

Demand occurrence – the probability that customer needs are different from normal data.

### Demand for Lead Time Equation

To calculate the lead time demand, you can use information about the expected demand forecast as well as the lead time demand.

 Demand for lead time = (Demand for number of lead days in implementation) * (Expected demand on a monthly basis) / (Number of working days per month)

In the example below, you will see how the timeout needed can affect the stockout of a particular Min.

– Read More: What is SKU Number? Example and Benefits
– Read More: Full Kitting: Meaning and Process
– Read More: What Is Stockout Cost? Formula And Example

### Typical inventory flow example

If you want to understand how the stock is calculated, you need to review the inventory aggregated on a basic web page. The website has a built-in Re-Ordering planning feature. In the example below, Min = 3 and the lead time is 5 days.

 Day Starting Inventory OH / OO Deman Replenishment Received Ending Inventory 1 3 OH 1 2 OH, 1 OO 2 2OH, 1OO 1 1 OH, 2 OO 3 0OH, 4OO 1 -1 OH (out of stock), 4 OO 4 -1 OH ( out of stock), 4OO 0 1 0 OH, 3 OO

## Summary

The probability of stockout formula can be confusing and takes time to understand, so be patient. Because as mentioned above, it will always be a parameter that needs to be calculated to help better manage goods.