Inventory and Forecasting Health Check: What It Covers

An inventory health check is a short, structured review of your stock, your forecasts and the process that connects them, designed to answer three questions quickly: where is cash trapped, where is service at risk, and what should be fixed first. It is not a full transformation project. It is the diagnostic that tells you whether a project is worth doing and what it should contain. This page describes what an inventory and forecasting health check covers, what data it needs, how excess and shortage are sized, what you receive at the end, and how to judge a proposal for one. It reflects how we run the Inventory Health & Optimization service at Newtown Analytics, and it is part of demand planning and inventory optimization. Related reading includes the demand planning audit checklist, a demand planning case study and cash flow management.

What we do and do not do

Newtown Analytics is a demand planning and inventory optimization consultancy. We are not an accounting, audit, tax, legal or financing firm, and a health check is not a financial audit or a valuation of your inventory for accounting purposes. We do not sell or resell software. We work with consumer product companies with revenue from $20 million to $300 million. A health check is the usual starting point for Inventory Health & Optimization, and it often leads into Demand Forecasting, S&OP/IBP Advisory or Analytics & Planning Automation work.

Signs a health check may fit

• Inventory has grown faster than sales, and no one can explain the gap.
• You have stockouts on important items while others have too much stock.
• Cash is tight, and a lender or owner is asking about inventory.
• Forecasts are often wrong, and no one measures how wrong.
• Purchasing relies on individual judgment, and there is no shared policy.
• You are about to invest in software or a new warehouse and want to know if the problem is the tool.
• A new leader has arrived and wants a fact base before changing anything.

What it covers

The data we ask for

A typical request includes an item list with cost, category, supplier, lead time and status; sales history by item and period, ideally for two years or more; current inventory by item and location, with receipt dates or age where available; open purchase orders; recent forecasts, if any; customer service data such as fill rate or order lines shipped; and the current planning calendar and reports. Where some data is missing, we say what we can and cannot conclude. We treat the data as confidential and agree handling in writing before it is shared.

How excess and shortage are sized

Excess is stock beyond what forward demand will absorb in a reasonable period. We compare on-hand and on-order quantities with a forward demand view, based on the forecast or, where there is none, a transparent estimate from recent sales and seasonality. Items are grouped by cover: for example, under 30 days, 30 to 90, 90 to 180, 180 to 365 and over 365 days. The value above a threshold cover is the excess. Shortage risk is the reverse: important items with less cover than the lead time plus a buffer.

An illustrative example (hypothetical numbers): a company holds $5.0 million of inventory, of which $1.2 million is above 180 days of forward cover. If the company expects to recover between 50 and 80 percent of cost on that stock through promotions, bundles, channel sales and returns, the cash potential is between 1.2 × 0.50 = $0.60 million and 1.2 × 0.80 = $0.96 million. The carrying cost of holding the $1.2 million at 18 percent is 1.2 × 0.18 = $0.216 million a year. Check: 0.5 × 1.2 = 0.6, 0.8 × 1.2 = 0.96, and 0.18 × 1.2 = 0.216. These are ranges, not promises: recoveries depend on the product, the channel, the timing and the decisions you make. We always present ranges and assumptions, and we show the part of the opportunity that is not recoverable and likely to be written down.

What you receive

A written report and a working session. The report includes a summary of findings in plain language, the key numbers with their definitions, the excess and shortage lists by item with proposed actions, a view of forecast accuracy and bias, observations on policy and process, a prioritized roadmap with effort and expected benefit ranges, and a list of quick wins that can start immediately. The working models, usually in Excel, are shared so that your team can refresh them. We also state what we could not assess and why.

What a health check does not do

It does not guarantee a result. It does not replace the work of changing the process, which is a project in its own right. It does not value your inventory for accounting. It does not recommend software, unless the findings show a tool is the right answer, and even then we have no commercial interest in the choice.

How long it takes

It depends on the scope, the quality of the data and how quickly your team can respond to questions. As an illustration, a focused review of one business unit might take a few weeks from data receipt to the working session, and a multi-site review longer. We agree the timetable when we scope the work.

How to judge a proposal for a health check

Look for a clear list of questions it will answer, a stated data request, a description of how excess and shortage will be sized, named deliverables, a plan for your team's time, a realistic timeline and an explanation of what happens next. Be cautious of proposals that promise savings figures before seeing data, or that depend on a software product. See how to hire a demand planning consultant.

Next steps

If you would like to discuss a health check for your company, see our contact page and tell us about your products, channels and the problem you want to understand.

FAQs

What is an inventory health check?

A short structured review of stock, forecast quality, policies and process that sizes excess and shortage and sets priorities.

How is it different from a full project?

A health check diagnoses and prioritizes. A project changes the process, the policies or the tools.

What data do I need?

Item list with costs and lead times, sales history, current inventory, open purchase orders, forecasts and service data.

Will it tell me how much cash I can free?

It gives ranges based on stated assumptions. Actual results depend on decisions and market conditions.