What's the Strategic Steps to Succeed in Inventory Forecasting ? Discover Steps and Decide on Future Forecasting of Inventory Systematically!

The most common formulaic methods for successful inventory forecasting are trend, graphical, qualitative and quantitative. Choose the best method based on known stocking issues, personal insights, feedback from sales, customer input, mathematical analysis and market research.

Accordingly you have to make strategies for 0ptimum performance of the industry.

Find below some of the top Strategies for an evolving organisation.

Steps to Succeed at Inventory Forecasting

Follow these basic steps to perform an inventory forecast:

Step1

Decide on a future forecast period, such as 30 days, 90 days or one year.

Step2

Review the base demand for the period. For example, if the company sold 500 units in the last period, the starting data point will be 500 units for the forecasting model.

Step 3

Decide on trends and variables and their effect on an increase or decrease in sales, such as any promotions or outlying marketing activity that may have affected the baseline demand.

Step 4

Review the sales velocity. Sales velocity is how fast sales move through the company pipeline. It is based on the number of leads, average deal value, conversion rate and the sales cycle length.

Step5

Calculate sales velocity with this formula:

Sales velocity (SV) = [(# of leads) x (average deal value) x (% conversion rate)] / (sales cycle length)

For example, imagine a scenario where your company has 20 opportunities to sell a product. The percent of these opportunities that usually get turned into a sale is about 50%. The average deal size is $5,000, with a sales cycle length of three months. Sales velocity is [(20 x .50 x $5,000)/90 days] = $555.56. This number means that the product is bringing in about $556 per day in revenue.

Step 6

Review upcoming marketing activity.

Step 7

Review any pertinent industry forces, such as new competitors in the marketplace, supplier issues, commercial buyer behavior, threats of less expensive product substitutes and other competitive rivalries.

Step 8

Review seasonality as it affects each product. There are many ways to determine seasonality, including calculating a seasonal index for each month, spreading the demand over 12 months or using more complex statistical methods.

Step 9

Consider the possibility of fads or unpaid publicity — including from social media. Since these can happen unexpectedly, many inventory supply experts can't predict these jumps in sales.

Step 10

Work with marketing staff who may have insight can help you plan for additional stock.

Step 11

Create models. Often, this science is more of an art that's based on all the collected trends and historic knowledge.

Step 12

You’ll use this information to build the models for forecasting. There are many statistical techniques. Which you choose depends on the stability of the product demand.

Step 13

Clean the data by removing unusual or outlier data points and looking for and filling in missing information.

Step 14

Identify either a parametric or nonparametric statistical approach. Nonparametric doesn't necessarily mean there are no parameters to the data, simply that the parameters are flexible. Nonparametric data includes things like histograms and ranked-choice surveys.

Process the data by loading it or arranging it in a datasheet appropriate for the algorithm.

Step 15

Estimate the model parameters: which is the best and worst case for the data points?

Step 16

Validate the model(s). Use different data than what you used to calibrate the model.

Step 17

Adjust the model regularly or when events require that you do so. 

Step 18

Remember, this is a forecast based on assumptions. Real-life can show it to be off base, so you may need to adjust the parameters.

Step 19

Reforecast, if necessary