Choosing The Right Inventory Forecasting Method
Inventory forecasting is also called demand planning. It uses past data, trends, and known upcoming events to forecast future inventory levels. Forecasting accurately ensures that businesses have enough inventory to meet customer orders and not over-invest in inventory.
To calculate the inventory required for future periods, inventory forecasting and reports are used. It considers replenishment data like availability and timing as well as delivery speed (also known as lead-time).
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How do you choose the right forecasting method?
Consider what data you already have and what data you can gather. This process will not be the same for every organization. Established companies should begin with historical data and then move to the quantitative approach.
Mixing data types and methods is the best way to forecast. Modelers have a starting point in quantitative data. The model is further enhanced by adding qualitative data. To complete forecasting, you can use industry-specific inputs.
It is important to ensure that the model takes into account wild cards, which are those ever-changing and unpredictable market changes and trends that can change demand quickly. Market research can be used to drive supply in smaller fluctuations, such as changes of fads.
Statisticians need to develop multiple models that are based on historical data and possible scenarios. Forecasters may also incorporate extreme-need scenarios to determine possible demand.