Beginners Guide to Inventory Forecasting
The Problem
Finding the right balance between maintaining healthy stock levels and minimising spending is a challenge for any Wholesale Distribution/Manufacturing/Retail business.
Forecasting demand often comes with immense friction - many operations feel that they would need a crystal ball to predict what is needed, where it needs to be shipped to, and when it needs to be ordered. Particularly in times of uncertainty.
As a result, it is common to see an overstocked supply chain causing cash flow issues in a bid to avoid items becoming unavailable. Alternatively, a business with healthy cash flow may find itself facing empty shelves or a lack of resources available as it did not plan/invest in advance.
So, how do we predict the future?
The good news is forecasting is not entirely fortune-telling or guesswork, trends and historical data can be analysed to make more informed choices rather than taking a gamble.
What will be needed?
First, look at what items or services are selling and have been selling. Use historical data to establish the current rate of growth. Consider quantities identified in a sales forecast and any planned promotions within the forecast period.
Where will it be needed?
Using current and historical data, establish the percentage of orders dispatched from each location or the percentage of hours used by each resource.
When will it be needed?
Consider your current stock levels and any orders yet to be received or dispatched that will affect stock. Also, check any allocations that will affect available resources in the forecast period. Use historical data to establish and allow for any trends affecting demand. Analyse the supply chain to understand lead times to ensure that orders are placed in time to meet demand and allocate available resources to meet any deadlines.
For businesses using Cloud ERP software such as Oracle NetSuite, your system will automate this process, saving time and money.
Oracle NetSuite sports Demand Planning, Distribution Resource Planning (DRP), and Material Requirements Planning (MRP) modules, enabling your company to manage the supply chain from end to end. Moreover, these modules are customisable to suit any unique business needs and are suitable for businesses of all shapes and sizes.
Demand Planning
NetSuite uses live system data, rules, and settings to suit your business needs; NetSuite can calculate your demand plans with its forward-thinking demand planning functionality.
Alternatively, these can be entered manually or overridden if needed. Once the demand plans have been generated or entered, the system will produce supply plans or suggested purchase or work orders to meet this demand. Supply plans are based on the demand plans and lead times, these again can be system calculated or entered manually to suit your business needs.
Distribution Resource Planning (DRP)
If you have multiple locations in your distribution network, DRP has settings and functionality to help your business manage this. DRP works with Demand Planning and utilises distribution rules and requirements set to suit your business needs to manage inventory requirements throughout your distribution network.
Material Requirements Planning (MRP)
For businesses that rely on manufacturing, MRP offers a range of functions designed to improve efficiency and accuracy in supply planning, with additional settings available to tailor supply planning to suit the specific needs of your business, and a user-friendly planning workbench to manage supply chain operations, MRP offers enhanced performance and clear visibility of operations throughout your supply chain.
Whether system generated or manually calculated, provided you have the data to determine what will be needed when and where, you may not be able to predict the future, but you can at least be prepared for what is likely to be needed, the actions you need to take and the investments you will need to make.
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To learn more about how Oracle NetSuite’s inventory forecasting functionality can future-proof your business, click here.