Overview

• The role of forecasting

• Types of forecasts

• Avoiding forecast data error

• Managing data for forecasts

• Benefits of group forecasting

Options for assessing demand

Buying safety stock, or purchasing a batch quantity, means making a prediction that the items will eventually be sold. This is a crude type of forecast. In order to improve the stockholding (increase availability and reduce stock) the quality of the forecast has to be improved. If forecasts were excellent and the supplier could predict when the customers would want items, they could be obtained and delivered just when they were needed: Good forecasting means low stock. Poor forecasting means high stock.

Forecasting should be based on data which is accurate and appropriate for the purpose. This is often a problem, and a forecast frequently has to rely more on balanced estimates of future sales rather than history. The data used to calculate the forecast include established demand patterns but ignore irregular demands for which stock is not normally held, such as scheduled customer orders (for which specific purchases are required to cover the demands). For example:

• one-off promotions

• sales campaigns

• one-off very large orders (generally orders where the demand is more than four MADs).

Good forecasting results in low stocks.

The selection of the forecasting technique is a difficult decision and either the inventory controller selects the most appropriate one or employs a focus forecasting technique. In general, it pays to use the most sophisticated technique available because it is a better model for the...