Can forecast accuracy increase your profits? INSTRUCTIONS to calculate your own accuracy.
If you knew exactly how much you were going to sell in the future of each of the items you stock, you could definitely reduce your inventory, right? That precise knowledge of your upcoming demand would mean you would not have to keep “buffer stock” in your inventory for unforeseen sales spikes. On the other hand, by stocking exactly what your customers were going to buy, you would also not have any out of stocks, so you would not lose any sales from not having product in stock. Of course, in the real world it is impossible to have 100% forecast accuracy. But is it possible to improve your forecast accuracy by 3%? How much financial impact would that have? How do you measure it? Is it worth the effort?
MEASURING THE DOLLAR IMPACT OF VENDOR LEAD TIME VARIABILITY
As a distribution company, the reliability of your vendors has a large impact on your inventory. There are two basic impacts from fluctuation in a vendor's lead time to you. 1. If a vendor's delivery is much later than anticipated, they can cause you to lose sales due to you running out of stock. 2. On the other hand, to protect against these late shipments your buyers probably carry extra-time supply for that unreliable vendor as "insurance." Most companies I talk to inherently know this and look for ways to measure their vendor lead-time performance. In this article, I will discuss one simple method to calculate and "dollarize" these impactsusing data you should be able to extract from your ERP system. I have seen companies - armed with this information - gain the leverage to successfully negotiate better terms with their vendors. Here's the bottom line - by understanding which vendors are costing you money due to inconsistent lead-time performance and by working with them to improve it, you can cut inventory and increase sales from reduced out of stocks.
CIO REVIEW - Inventory Forecasting in the Cloud for Distribution Companies
The art of providing the right product at the right time and right place to the customer is something that has been championed by Thrive Technologies. headquartered in Marietta, GA, the company is a provider of cloud based demand forecasting, inventory replenishment and inventory performance software to SKU (Stock Keeping Unit) intensive companies. Rick Morris, CEO, Thrive Technologies explains, "From a technology point of view, we have observed that wholesalers and the master distributors in our market are not taking advantage of the latest inventory science, and are losing sales and profits unnecessarily. To fill this gap, we provide them with a cloud based inventory forecasting system, which analyzes various sales transactions for each item and customer, to create an accurate forecast and optimal orders for each SKU."