Stock coverage is an inventory management indicator used to know when merchandise should be restocked and when stock should be replenished.
It’s a time indicator measured in days.
Stock coverage is determined on the basis of daily product issues and existing stock levels. It’s the number of days needed between two replenishments to maintain a sufficient stock level and cover demand. The inventory turnover rate is important to monitor to ensure the sustainability of your business.
When stock coverage is low, it means that items are selling fast and need to be replenished quickly.
On the other hand, when stock coverage is high, it means that products aren’t selling well. This is a worrying sign that money is being tied up unnecessarily over too long a period, whether that means weeks, months, or even years.
When stock coverage is high, this indicates that space is being taken up in the warehouse unnecessarily, to the detriment of production. In this case, some items may never be sold, because the quantity is too large.
Worse still, when it comes to perishable goods, it's better to limit stock coverage, at the risk of having to throw away products before they can be sold.
Note that a high stock coverage equates to a low turnover rate, i.e., mediocre sales. Conversely, when stock coverage is low, the inventory turnover rate is high. This means that sales are high.
In this respect, it's important to strike the right balance between stock shortages and overstocking, so as not to suffer from shortages, but without taking up too much space in the warehouse.
Dormant stock carries a considerable financial weight. It generates storage costs and represents a significant fixed asset.
A stock shortage, on the other hand, has instant repercussions on the production chain, not to mention the potential loss of customers and the risk of disputes.
In other words, stock coverage is an indicator that you will want to monitor closely. So don't forget to carry out regular stock checks and analyze your outgoing flows in order to draw up a sales forecast.
