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 |
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: