Example of a weighted average of a negative inventory level

The average negative projected inventory level is one of the performance indicators of the Resource Analysis and Optimization (RAO) module of Enterprise Planning .

The computation of the average negative projected inventory level is based on principles similar to those of the average projected inventory computation. An important difference, however, is that for the computation of average negative inventory, LN only considers those stretches of time during which the projected inventory is negative.

Once the exact periods of negative inventory level have been determined, LN computes the average negative projected inventory. In other words, a weighted average is computed that takes the length of the various periods with negative inventory into account.

The calculation example below uses the following figures:

  • Inventory on hand = 10
Plan period 1 2 3 4
Length of plan period (days) 2 2 5 5
Projected (end) inventory 30 -10 -20 60
Days with negative inventory 0 0.5 5 1.25
Average negative inventory   5 15 10
  1. For plan periods in which there is a shift from positive to negative or from negative to positive, the number of days with negative inventory is computed as follows:

    For plan periods in which there is a shift from positive to negative or from negative to positive, the number of days with negative inventory is computed as follows:

    |N| The negative inventory level (expressed as a positive figure)
    P The positive inventory level
    Days The number of days of the plan period

    In the case of a shift from positive to negative inventory, NegLevel is the end level of the plan period, while PosLevel is the starting level (equal to the end level of the previous plan period). When the shift if from negative to positive inventory, these roles are reversed.

  2. The average negative inventory for a plan period is computed as follows:

    The average negative inventory for a plan period is computed as follows:

    |N| The negative inventory level (expressed as a positive figure)
  3. Now, LN can compute a weighted average negative inventory for all plan periods according to the following formula:

    Now, LN can compute a weighted average negative inventory for all plan periods according to the following formula:

    ANI(pp1) The average negative inventory for plan period 1
    NegDays(pp1) The number of negative inventory days in plan period 1
    Sum(NegDays) The total (round) number of days with negative inventory

The NegDays figures for the various plan periods (see Step 1) are decimal values. These values are added up and the outcome is rounded upwards, yielding the value for Sum(NegDays).

In this example, the weighted average negative inventory level is computed as follows:

Related topics