Navigate to: Settings > Configuration > Forecast
Definition
Definition
This setting will include zero sales at the beginning of the history. This may result in a lower forecast for items with fewer months of sales history.
Use case
Use case
This is useful for new items where the first month is a pipeline fill that won’t be replicated in the second month. If there is one month’s sales history of 1000 units, it’s useful to add 1 leading zero so the forecast will be for 500 units instead of 1000.
Before using this parameter, consider the following:
How many new products are introduced in a month?
If the answer is one or two, don’t use this parameter.
Do the new items typically sell more or less in the second month than in the first?
If it sells less, use this setting.
If it sells more, don’t use this setting and ensure proper forecasting for these new items are done to reflect the upward trend in sales.
Explanation
Explanation
Scenario 1: Supplying to large resellers
Imagine a business that supplies new items to large resellers.
The first order will typically be a Replenishment Cycle’s (RC) worth plus Safety Stock (SS).
In an ideal situation, the customer will place another order before dipping into their safety stock, ordering only an RC’s worth next time.
In this case, a leading zero will be useful to reduce the risk of over-forecasting.
Scenario 2: Supplying to the general public
Now imagine a business that supplies new items directly to the general public.
If the item is a regular, unnoteworthy product (such as a towel), there is no reason to assume sales will drop in the second month.
In this case, a leading zero is not required.
In fact, using one could cause under-forecasting.
However, if the item is a high-profile launch (such as a new smartphone or video game), there will likely be a strong initial surge followed by a decline in demand.
In this case, a leading zero will help reduce the risk of over-forecasting.
In extreme cases like these, proper promotion planning is a better solution than adjusting this parameter.
Scenario 3: Slow-moving or irregular sellers
If the item is slow-moving and sells only every few months, an early sale does not mean it will sell again soon.
In this case, adding one or more leading zeros will help reduce the risk of over-forecasting.
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