improved forecasting accuracy that leads to improved demand management. Improved demand management will allow the vet- erinarian to better manage cash flow associated with invested capital, to take more precise advan- tage of distributor’s specials and promotions, and to improve operational efficiency through implementa- tion of lean processes. Improvement of inventory demand forecasting will also have a significant pos- itive effect on the ability to increase profits while decreasing working capital investments to the ex- tent that a return on investment into inventory cost saving is usually worthwhile based on the resulting improvement to shareholder value. In all, the ef- fect of improving the accuracy of the inventory demand forecasting process will translate into in- creased gross profit margins, which directly increase
Appendix: Formulas Name Percent error Mean absolute percent error PE (forecast sales) / sales
MAPE PE /N (Sum of the absolute value of all percent errors divided by the number of instances)
Simple exponential smoothing forecast Ft
Total actual inventory cost Purchase cost Holding cost Order cost
Economic order quantity Inventory turnover
Days of supply Reorder point
Yt1 (Where Ft
(1 ) Ft1
last period’s forecast) TAIC PC HC OC
PC (demand) (cost tax)
HC (order quantity / 2) (holding rate) (cost tax) OC (demand / order quantity) (per order cost)
EOQ square root of (2 demand per order cost) / ((holding rate) (cost tax))
Inv. TO cost of goods sold / average inventory Or
Inv. TO (annual demand) / (order quantity / 2)
D of S (order quantity / 2) / (annual demand) (No. of days open for business during year)
ROP (annual demand) / (No. of days open for business during year) lead time (where lead time is the time period between order placement and order receipt)
is this period’s forecast, Yt1 is the last period’s sales, and Ft1 is the Formula
profits net of taxes, and thereby create an increase in the value of the practice.
Acknowledgments
Declaration of Ethics The Author declares that he has adhered to the Prin- ciples of Veterinary Medical Ethics of the AVMA.
Conflict of Interest The Author declares no conflicts of interest.
Reference 1. Colo
´n JL. How to implement a lean inventory management
system for a solo equine practitioner, in Proceedings.Am Assoc Equine Pract 2014;60:377–379.
