Training on Demand Forecasting

1. Demand Forecasting
Vincent 10/8/2010

2. 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

3. 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

4. Forecast for items with recurring usage
• Past usage
• Internal trends
• External trends
– Weather, economy
• Collaborative forecasts
– Sales input
– Special promotion
• Forecast horizon

5. 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?

6. 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

7. Determining the Best Forecast Formula
• Forecast error % = absolute value of (forecast
–usage)/actual usage

8. Questions?