Summary
This article walks through what cycle stock and preferred cycle stock is and how they are calculated.
Applies To
All Items in StockIQ
Process
Cycle Stock refers to the portion of your inventory through which you are expected to "cycle" during normal operations, e.g. the amount that you will replenish, sell through, and replenish again.
It is calculated in the following fashion:
Cycle Stock = Largest Of(EOQ, OrderMultiple, MinOrderQty, Usage over Order Cycle Days) + ErrorFactor
The ErrorFactor is a correction applied that takes into account the error in the statistical forecast model of this item, providing a bit of headroom on the uppper bound of the Max Stock calculation:
ErrorFactor = 3 * ExpectedWeeklyErrorInUnits
The 3 represents 3 standard deviations, covering you for approximately 98% of variation that you'd expect to see.
Example: If you have a min order quantity of 10,000 units, then it's expected that at some point you'll probably have to have close to 10,000 in stock, since you're forced to order that quantity when you do order. Such would not be the case if your min order quantity was only 1,000 units, or less. It is important to realize that StockIQ does not target or attempt to reach your Cycle Stock level, it is merely a guidepost to help you understand when you are overstocked or not. EOQ is only considered when the item is set to Order Point order policy, since that is the only order policy that uses EOQ.
StockIQ calculates a second Cycle Stock variant, known as "Preferred Cycle Stock", which excludes the effect of supplier mins and multiples, so that you can calculate a preferred max stock value.
Preferred Cycle Stock = Largest Of(EOQ, Usage over Order Cycle Days) + ErrorFactor
This allows you to differentiate between what your supplier requires, and what you would ideally wish, such as if you changed suppliers or if they changed their minimums. See Max Stock and Preferred Max Stock