The tools to create the best possible forecast
If you don’t know what you are going to sell tomorrow, how can you decide what to buy today
Many businesses say that they don’t forecast. You may believe that you are not forecasting, but any of the following are a forecast that you have to compute manually for every item:
- Using the average of the last 3 months sales
- Manually calculating min/max levels, entering them into your ERP and ordering to them
- Using gut feel
There are numerous tools within the App to help you to create the best possible forecast without having to review every single item, resulting in optimal purchasing and planning – and helping you to grow your business.
At the beginning of each month, the forecast should be reviewed to ensure that it is reasonable and that all known information is included in the forecast.
Let a forecast engine forecast all items
Let a forecast engine do the grunt work and create computer-generated forecasts for all items:
- Using sales or demand history to generate a forecast
- Picking up on:
- Intermittent demand
- One-off sales spikes
The forecast engine:
- Generates 15+ forecasts for every item using a variety of forecast algorithms
- Each generated forecast is compared with the item’s actual sales or demand history
- The forecast that best fits the demand pattern of the item is chosen
This results in great forecasts for the bulk of your items.
Monitor sales versus forecast exceptions
A small percentage of items will need manual intervention, as no forecast engine will get every forecast right. Monitor those items with consistent variances between sales and forecast:
- Adjusting the forecast up where sales have consistently exceeded the forecast
- Adjusting the forecast down where sales have consistently been lower than the forecast
By aligning sales and forecast more closely, there is much less risk of either generating excess inventory or experiencing costly stock-outs.
Adjust forecasts for won or lost customers
Adjust forecasts for new or lost customers, as soon as you are aware of the change. Use the computer forecast but:
- Subtract a lost customer’s monthly demand from the computer forecast
- Add in a new customer’s expected monthly demand to the computer forecast
Manually forecast new items
New items will have no sales, so should be manually forecast for the first few months.
- Items with stock on hand or on order for which there is no forecast are flagged as new
- New items are listed on the dashboard in descending order of value
- Drill-through to individual items and add in a manual forecast
New items are often a replacement for a “like” product, where a cheaper or better quality product has been sourced and will now be sold instead of the old product. Linking the “new” item to the “old” item in a supersession chain will result in the sales history of the old item being used to generate the forecast for the new item.
Do a sanity check at a macro level
After making changes to individual item forecasts, review overall sales to forecast to ensure that the overall growth is not too extreme or too conservative.
- Start the sales versus forecast review at the total level
- Filter the sales and forecasts summary to review the forecast for key product groups
- Your version of the App may allow macro forecast adjustments
Monitor sales versus forecast exceptions
During the month, dashboard alerts highlight items where you are selling either much more or much less than the forecast. Reviewing these alerts enables a prompt response to potential changes in demand:
- Review forecasts for the top 5-10 sales versus forecast exceptions
- Where you are selling more than the forecast, consider increasing the forecast
- Where you are selling less than the forecast, consider reducing the forecast
- Be mindful that you may be selling less due to stock-outs
Adjust the forecast as soon as you see a trend emerging, before it results in stock-outs or excess inventory.
Optimal purchasing and planning
The forecast is vitally important because it is:
- Our best guess as to our future sales expectation
- Used to determine the optimal inventory levels that drive replenishment
- Used to determine the item’s status:
- Potential stock-out
- Surplus order
The more appropriate the forecast, the more accurate our purchasing and planning will be – and the better shape our inventory will be in.
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