Best Practice in Inventory Management, Second Edition
Use this reference to learn to implement a variety of processes vital to inventory structure and control.
TABLE OF CONTENTS Best Practice in Inventory Management, Second Edition
Chapter 10: Historical Forecasting Techniques
Overview
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Historical averages
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Better forecasts with weighted averages
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Choosing the weighting factors
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Choosing the best forecast
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Warning when forecasts are bad
Basic forecasting techniques
Forecasting
Minimum stocks are possible when a good knowledge of demand exists. If demand were known accurately enough and far enough in advance, then no stock would be necessary. On the other hand, if there is very little market information, high stocks are needed to ensure reasonable customer service. Forecasting is therefore one of the important aspects of stock control. It is a complex art which embraces many factors.
There are two basic approaches to forecasting:
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assessing future market requirements
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using demand history.
Assessment of demand
Assessment of demand requires the knowledge of customers, products and background conditions. That comes from discussion and evaluation with users further down the supply chain and through techniques such as market research, questionnaires and customer surveys. The strength of these techniques lies in providing general information on the levels of business and on the likely uptake of a new product, or the phase-out of an old one. This information is invaluable where large changes in demand level are likely to occur.
These techniques need to be better managed to make them more acceptable as forecasting tools for each line item, and inventory management need to work with sales departments to ensure that they do not draw optimistic conclusions - higher demand - which then has to be second guessed for planning stocks. However, assessment of the market demand is an...
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