Which forecasting method is best for your business?
The goal of Slim4 - Slimstock’s inventory optimization software – is to predict the future. Specifically, how much of an item you’ll need to meet customer demand. Predicting the future is hard work even using historical data. With our ever more interconnected world, the number of data points available is almost limitless, so the challenge is getting the right data and using it in a way that increases predictive accuracy.
When preparing to order inventory, two approaches are typically used – monthly forecasting and weekly forecasting. But which method works best? The temptation to default to weekly forecasting can be understandable because on the surface it can seem timelier and thus more accurate. If 12 data points are good, then 52 should be better, right? This isn’t always the case.
In 25 years of helping customers get the right product in the right place at the right time, we’ve seen that most products can be predicted and ordered more accurately using monthly forecasting.
In plain English, monthly forecasting means that sales data is captured daily and bucketed into months to produce a forecast. Similarly, weekly forecasting involves bucketing daily sales into weeks to create a forecast. This creates 40 more forecast periods in a given year.
Monthly forecasts work best for most products because they tend to generate lower forecast errors. While there is variation in how many units are sold week to week within a monthly forecast, if we’re doing our job correctly, you’ll still have the right amount on your shelves whether it’s 1st, the 15th or the 30th.
The three primary reasons monthly forecasting is more reliable are -
- Monthly forecasting’s larger bucket better absorbs changes in customer order timing. If a customer who normally orders a part from you in the first week of a month instead orders it in the second, this can disrupt your order data. However, this potential disruption is nearly four times as likely to be absorbed by monthly forecasting, leaving your order data unaffected.
- Monthly orders reduce the number of zero entries in your data, meaning the law of averages works for you. If a customer places an order with you for 100 units every two weeks, it results in a simple average of 50 units per week. But, the forecast error relative to this average will always be wrong because the order quantity is never 50, it’s either 100 or 0. Taking a monthly view of this order pattern makes correct forecasting easier because it shows consistent usage with fewer zero entries.
- Monthly timeframes handle seasonality better. Months are predictable – they’re in the same order every year. Weeks, however, are a little squirrely – they can move around +/- 4 days in either direction. The relative unpredictability of weeks makes them more difficult to use when factoring in seasonality, especially if there are only a few years of data to base forecasts on. Monthly timeframes more reliably allow general tendencies to develop and be represented in your order data.
Even an accurate forecast amount isn’t much good to you if it doesn’t show anticipated demand over the right period of time. If this happens, you’ll have stockouts and falling customer service goals will be soon to follow.
As stated earlier, weekly forecasting requires more effort than monthly, but is appropriate for items that have an observable repetitive pattern of usage within each month.
Here is an example of an item that meets this criteria.
With 60% of sales coming in the first week of the month, this product is good candidate for weekly forecasting.
Items with short lead times and consistent sales work best for weekly forecasting. By identifying these opportunities, the product can be ordered close to when it is needed, which helps improve inventory turnover and the overall profitability of the company.
Other advantages to weekly forecasts are:
- Compatibility: If your customer is communicating with you in terms of weekly forecasts or weekly Point-of-Sale (POS) information, generating your own forecasts in kind can provide an invaluable direct linkage with them. Getting that direct linkage with data closer to the retail customer may outweigh any potential internal forecast accuracy improvements.
- Medium Volume Items: If you are dealing with medium volume items, a weekly approach produces more accurate trend lines and better reflects shifts in demand.
Slimstock’s implementation team will help you identify which type of forecasting is best for your product array based on historical sales data. For items that fit weekly forecasting criteria, Slim4 distributes volumes from monthly forecast data to the appropriate week in the month using historical pattern references or defined business rules. This approach delivers the advantages gained from monthly forecasting as outlined above, while accounting for observable specialized demand needs within the month.
Monthly or weekly forecasting - the best way to decide which approach is right for you is to schedule a demo of Slim4 with our inventory experts. They will run your ordering data through our proven inventory optimization software to show you real savings opportunities that have delivered post-implementation ROI of 6-12 months for most customers.
Slimstock has been helping companies like yours lower inventory costs while increasing customer satisfaction for 25 years. Our inventory management software is used by over 900 customers worldwide to free up capital and simplify the ordering process. Chat with one of our friendly customer service reps today to learn how we can help optimize your inventory.
To keep up with continuous growth and spiraling complexity, the UK’s largest distributor of fluid power products, Flowtechnology, has taken an important step towards simplifying their supply chain processes. Already impressed by the results delivered by Slimstock’s inventory management solution, Slim4, the business has now taken the decision to upgrade the bolt-on solution to also enhance the way they manage the components required for their kitting and manufacturing operation.
"When it comes to efficient implementation projects and professional consultancy services, the team at Slimstock have a proven track record"
“Given the continuous growth of our business coupled with the increasingly more challenging expectations of our customers, the complexity of our operation has increased exponentially in recent times,” explains Lucinda Barrow, Supply Chain Manager at Flowtechnology. While the team at Flowtechnology had previously relied on spreadsheets, this was no longer sufficient. Lucinda goes on to explain: “Put simply, we needed a solution that could simplify our processes and provide greater visibility; all while improving the efficiency of our operation.”
For nearly a decade, Flowtechnology have relied upon Slimstock as their partners for inventory management. “Over the years, I am proud to say we have developed a very close relationship with the team at Flowtechnology. As the business goes from strength to strength, we look forward to helping them every step of the way,” explains Richard Evans, Managing Director at Slimstock UK.
Lucinda goes on to add: “When it comes to efficient implementation projects and professional consultancy services, the team at Slimstock have a proven track record. As a result, the decision to upgrade Slim4 to also improve the way we manage our Bill of Materials, was an easy one.”
Now that the Bill of Materials module has been successfully implemented, the team at Flowtechnology are working hard to improve the accuracy of their forecasts in order to optimise both the availability and planning of all components. Lucinda concludes: “Flowtechnology is growing and I am excited to continue this growth with the support of Slim4 and the team of experts at Slimstock.”
If you would like to know more or if you would like discuss opportunities within your company, contact us directly to find out more.
After extensive research into the market, Vegware, the award-winning manufacturer of eco-friendly catering disposables, has this month joined forces with Slimstock to help improve their already impressive availability levels. Following several years of rapid growth, the Edinburgh-based business will take advantage of the inventory management specialists’ solution, Slim4, to help keep up with the demand from both new and existing customers.
As the only manufacturer of completely compostable catering disposables to operate on a global scale, Vegware’s extensive customer base encompasses everything from independent cafes to multinational catering distributors. With a wide range of premium takeaway coffee cups, takeout boxes and food containers, Slimstock will help Vegware improve upon their already exceptional customer service.
Commercial director, Chris Murphy explains: “Vegware is a high-growth business – we have grown in double digits year on year. We already sell to clients in over 25 countries, but we needed a robust system to support our growth ambitions. A reliable insight into future demand is vital to help us meet the evolving needs of our customers”.
With the support of Slimstock’s inventory management solution, the team at Vegware will be able to forecast demand with far greater accuracy to make more informed inventory decisions while the management by exception principles of Slim4, allow the team to proactively manage potential issues before they become a problem.
“After looking at multiple software vendors, Slimstock were the only ones to demonstrate a proven roadmap to success. Furthermore, given their solid relationship with Microsoft Navision, it was obvious that Slimstock are the right partner to help support our continued global growth,” adds Murphy.
If you would like to know more or if you would like discuss opportunities within your company, contact us directly to find out more.
Vegware is a manufacturer and visionary brand, the only completely compostable packaging company operating globally. Our award-winning catering disposables are low carbon, made from renewable or recycled materials, and all can be recycled along with food waste where facilities exist.
Vegware was established in Edinburgh in 2006, and has operational bases in Huntington Beach, Sydney and Hong Kong, with distribution throughout Europe and the Middle East. A globally recognized brand supplying independent cafes through to the world’s largest contract caterers and distributors is testament to quality products at competitive prices.
Notes to Editors:
Bicycle production in the UK has undergone a resurgence in recent years. Since 2007, output has more than doubled and in the last year alone, exports have increased by an impressive 13%. However, UK-based manufacturers have a lot of work to do before they can compete with the Far Eastern powerhouses that dominate the industry. So how can British brands break away from the competition to exploit the accelerating growth in the market?
Boosted by the current buoyant market conditions, all of the major bicycle brands have recently announced plans to achieve substantial growth over the next few years. However, while the current weak pound may have helped manufacturers to increase both output and exports, the good times can not last forever. With Brexit looming, businesses must take steps now to ensure their operation are able to attack the growth opportunities that lie ahead.
The question is, what challenges should manufacturers prioritise in order to get ahead of the pack?
Forecasting: maintaining a well-oiled chain
From hubs and spokes to nuts and bolts, even the most basic of bikes are comprised of a vast number of components. While some components are unique to particular products, others are shared across a broad number of products. To add further complexity, consumption rates, minimum order quantities, supplier reliability and most importantly, lead times will differ for each raw and semi-finished component. Consequently, supply chain team’s face a huge challenge in ensuring that every item is available when required!
Regardless of whether a business operates in a make-to-order or a make-to-stock environment, supply chain teams depend on accurate forecasts in order to determine which products to buy in what quantity. Without this insight, operations can quickly become inundated with excess stock as the business invests precision working capital into components and finished goods that simply not required. Or, worse still, the whole operation could become subjected to bottlenecks and delays as the items that are required to meet customer demand are simply not available!
By putting in place tools that enable accurate forecasting, manufacturers can develop robust demand plans which in turn can be used to underpin the entire manufacturing operation. With this additional visibility, supply chain teams can ensure that both the right products are being made but also that all of the required components are ordered at the right time in the optimal quantity.
S&OP: it’s a team sport
When it comes to exploiting growth opportunities, it is evitable that there will always be a degree of risk. After all, to satisfy additional demand, there will be a greater requirement for raw materials, semi-finished components and even finished goods: all of which require investment and tie up invaluable working capital!
However, each business division is likely to have a very different opinion on how this risk should be managed. For example, with the potential to win new customers, sales teams will most likely demand a big investment to ensure that the manufacturer’s operations can keep up with demand. However, on the other hand, finance teams may be more interested in budgetary restraints and thus preventing any financial fallout in the event that growth fails to materialise will be a bigger a priority. Operational and supply chain teams have the difficult task of balancing these perspectives.
In order to synchronise key supply chain decisions around product portfolio management, demand planning & sales forecasting, supply planning, inventory & purchase planning, manufacturers must have a well-defined S&OP process in place. However, in order to effectively encompass finance, sales, marketing, and operations teams into the decision-making process, the business must have the required level of knowledge and insight to truly benefit internal collaboration.
Even for the best performing manufacturers, there is always a cap on how much they can actually produce. While the new orders that come with growth will place great strain on operations, by bringing the whole organisation together, a robust S&OP process will ensure everyone is heading in the same direction.
Outpace the competition with Slim4
Thanks to powerful analysis and forecasting capabilities of Slim4, some of the biggest names in cycling have utilised Slimstock's inventory management tool in order to drive the performance of their operations. With a greater overview of the supply chain, OEMs are better positioned to optimise S&OP processes, harness supply chain collaboration and keep stock levels under control. This, in turn, enables supply chain managers to reduce inventory holding and minimise costs while simultaneously maximising service levels and efficiency.
Manufacturers who use Slim4 typically enjoy the following benefits:
- Reduced inventory of raw, part finished & finished good by up to 30%
- Prevent bottle necks through reducing stock-outs by up to 60%
- Greater control over inventory cost