The Basic Stock method of inventory planning calculates a baseline level of inventory that is the same for all months; inventory should not drop below the base level. Planned sales for each month are added to the basic stock to derive the beginning of period inventory value. Basic stock value is calculated as average inventory divided by average sales.
Using Basic Stock as a Planned Value
Supplies a very conservative method of inventory planning
The Basic Stock method of inventory planning is an option to consider for businesses with very consistent sales and inventory levels, meaning there is little seasonality or fluctuation in sales, as the baseline stock is the same for all months.
Uses average values, thus flattening trends
Basic stock is not an appropriate method from which to calculate planned inventory for seasonal business, emerging categories, or products with less predictable selling patterns. Basic Stock is calculated from average inventory and average; using average values to calculate a specific time period’s inventory will result in seasonal fluctuations being flattened.
Better suited for planning at the lowest level of detail (SKU)
Basic stock method is suitable for planning individual SKUs (stock keeping units) and is similar to the process used by replenishment applications.