Demand Forecasting

Vincent 10/8/2010

Stock vs. Non-stock

• Ranking products based percentage of total activity (number of hits)

• Non stock items– Low activity and high value items

• Stock items– High activity and low value items

Demand Forecasts and Usage

• Products with sporadic usage– Maintain the stock based on multiple of the

typical sales or usage quantity. – Roll up the usage to the central warehouse – Or set up as non-stock items?

• Products with recurring usage

Forecast for items with recurring usage

• Past usage• Internal trends• External trends– Weather, economy

• Collaborative forecasts– Sales input– Special promotion

• Forecast horizon

Past usage

• Direct or drop shipments– Direct shipments should not be included.

• Shipping an order from an alternate warehouse instead of the designated one– Usage should be recorded with the designated one.

• Usage and substitute products• Record usage when a customer wanted the product

– Required date vs. actual ship date?• Usage and transfers

– Treating other warehouses as customers?

Utilizing Usage to Forecast Demand

• Seasonal products– Consider usage from the last year– Adjusting usage for unusual usage– Weighed average • 3x same month LY +2x next month + 1 following month

– Use seasonal index– Applying trend factors • compare last year’s usage with this year’s usage

Determining the Best Forecast Formula

• Forecast error % = absolute value of (forecast –usage)/actual usage

Questions?