Navigate to: Settings > Configuration > Forecast
Definition
Definition
Generates a forecast for new items as soon as they start to sell. Uses month-to-date (MTD) sales to influence the forecast for “Young” items (those with less than 4 months of sales history).
Use case
Use case
It is best to leave this setting on. This ensures that forecasts for young items can be recalculated mid-month if required, allowing orders to be based on a more accurate forecast derived from current month-to-date sales.
Bear in mind that increasing the current month’s forecast will only prevent the item from stocking out this month if it has a short supplier lead time. Increasing this month’s forecast when the supplier has a 120-day lead time means the additional stock required will only arrive in 4 months’ time, when it is no longer needed.
Luckily, items with long lead times will have higher amounts of safety stock calculated to protect them against this happening.
Explanation
Explanation
As you know, the forecast is a crucial factor in calculating the recommended order quantity and placing the best order that will not result in excess or stock-outs. Inaccurate forecasts lead to inaccurate orders.
For young items with limited sales history, generating an accurate forecast is even more challenging. Are you over-forecasting and thus over-ordering excess stock? Or are you under-forecasting and thus under-ordering, resulting in stock-outs?
For ‘normal’ items with sufficient sales history, forecasting once a month is adequate. However, for young (new) items, daily forecasting may be required to ensure accurate orders.
Imagine that last month you forecasted the young item would sell 100 units this month. You are halfway into the current month and would expect the item to have sold 50 units. However, this young item has already sold 200 units. Reforecasting this young item means that the forecast will be increased to 400 units, enabling accurate ordering.
Question: How did you get to that number?
Answer: We are 15 days into the month and have sold 200 units.
Daily rate of sales = 200 ÷ 15 = 13.33 units/day
There are 30 days in this month.
Adjusted forecast = 13.33 × 30 = 400 units
Question: Can I get a harder example?
Answer: Sure. Last month, you forecasted that the young item would sell 100 units this month. You are 7 days into the current month and have sold 43 units. What does the forecast need to be adjusted to?
Daily rate of sales = Units sold to date ÷ Days into the month
= 43 ÷ 7
= 6.143 units/day
Adjusted forecast = Daily rate of sales × Total days in this month
= 6.143 × 30
= 184 units
FAQs
FAQs
Question: Can’t I forecast all my items, young or old, daily?
Answer: No. There are multiple reasons not to forecast established items daily.
Processing time: Forecasting all items daily significantly increases the time required to run the daily import schedule.
Forecast accuracy: It may actually be detrimental. Imagine you sell 100 pizzas every month. Your sales history depicts 100 pizzas sold per month, and your forecast reflects that. You are halfway through your current month and have sold 10 pizzas. Reforecasting daily would reduce the forecast to 20 pizzas. However, if payday arrives at the end of the month and demand spikes, you would stock out.
Moral of the story: Some items sell better or worse at specific times of the month. Forecasting based on monthly sales history is more reliable than forecasting daily.
Question: Pizza is an interesting example. Should I not be forecasting it daily instead of monthly to ensure it does not go off?
Answer: Good spot. That is where our other product, Predictor IBP, comes in to save the day. Predictor Inventory Advisor (IA) works best with non-perishable goods where capacity planning is not required.
Question: If I can’t reforecast my established items daily, how will I know if I got this month’s forecast wrong?
Answer: It is important to compare the item’s month-to-date (MTD) sales with how far into the month you are and make informed decisions based on that. This exception report can be accessed on the Forecast screen.
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