Forecasting Inventory: Using Demand to Determine Supply

ForEcAsTing invEnTory: Using DEMAnD To DETErMinE sUPPly By Eric Wilson Very often businesses do not fully take forecast accuracy into account when determining inventory levels … describes the best way to calculate inventory that accounts not only for the forecast accuracy but also for variations in demand and degree of certainty needed … very often when forecast error improves, no measurable reduction in inventory is made. D D o you spend hours mulling over data and/or software determining the clearest picture of what sales are going to be? For most companies, demand is only half of the story. While one department estimates demand, another plans supply to meet what it believes demand would be. You can come up with the best forecast that money can buy, unless that forecast truly drives your supply chain it would be like being all dressed up without a date to the prom. Three questions are often overlooked: 1. Based on a forecast, does a company really know how much to produce? 2. By how much will your company’s inventory decrease with a decrease in forecast error? 3. How certain are you that your inventory will be enough to meet true customer demand? THE sUPPly viEW ...