Some of the key questions that need to be answered during business planning are:
- What is the expected demand for each of the SKU categories over the next few weeks/months (Demand Forecasting)
- What is the minimal inventory, and the right reorder point for each SKU (Safety Stock and Replenishment Strategy)
- How much inventory of each SKU do we need to maintain at a particular point of time (Inventory Optimization)
Qualitative v/s Quantitative Forecasting
Some of the Time Series methods used are:
- Interaction with key stakeholders – to answer questions such as what needs to be forecasted, time period for which forecast is required, current methodology for determining forecasts, etc
- Collection of data – Available historical sales data needs to be collected in addition to other data such as sales targets for next month/year, marketing budgets and allocations, marketing plans, etc.
- Available tools – Tools that are currently available in your organization, can be MSExcel, SAS, R or any other statistical tool.
- Choosing the right model – A starting point can be to plot the available data to determine trends, presence of seasonality, outliers and correlation between available variables. The final model used depends on data availability, strong correlation between explanatory variables with sales, etc. It is common to use more than one model - the committee approach.
- Evaluating a forecast model – evaluation of a forecast model is possible only after actual data is available for that time period, common metrics used are MAE (mean absolute error), MSE (mean squared error) and MAPE (mean average percentage error).
A more detailed case study can be found here.
Other Forecasting Tools