Free trial

Peeking under the hood: Inventory forecasting calculations

Posted by Chris Thompson on Jun 4, 2021 10:14:27 AM
Chris Thompson

Maths is one of those dividing subjects - some love it, others hate it. Yet it's a crucial part of inventory forecasting.

There's a lot of number crunching that happens under the hood of StockTrim, involving calculations based on thousands of lines of sales data.

We're going to have a look at what some of those calculations mean, including how we factor in seasonality and various forecasting methods.

close up of math formulas on a blackboard

Calculating seasonality

Do your sales spike at Christmas? Do you import seasonal equipment? Is Black Friday one of the biggest days in your calendar? 

There are few businesses which aren’t impacted by seasonality, which in turn has repercussions for inventory forecasting and order planning.

No business wants to run out of stock in their busiest time of the year. The opportunity cost of a stock-out is daunting, in both lost sales and customers 

But there's no reason to panic. Seasonal trends are automatically detected by StockTrim and applied to your forecasts. 

The system looks at up to 24 months of sales history and takes into account the difference in sales for a month compared with the historical average.

This is applied to future months so that you've always got enough skis to sell in winter and plenty of textbooks at the start of the school year. 

(The many ways of) calculating forecasts 

As with most things, there’s more than one way to achieve what you want to do - and this is the case with forecasting. 

In fact, StockTrim has five methods to calculate your demand forecast

  • Linear trend - the simplest calculation, which draws a straight line through your sales history to make your forecasts.
  • Rolling average - this uses the average monthly demand over the previous lead time, and applies that to predict future months. 
  • Steady change - the steady change model mimics seasonality (an increase followed by a decrease, or vice versa) and is useful when you don’t have a lot of sales history.
  • Increase then level off - this forecasts your demand as a steady increase from your sales history, then levels to a sustainable monthly demand (ideal when you anticipate a surge in demand). 
  • Auto - auto is the recommended setting. It automatically assesses which model will work best and selects it for you.

Take the guesswork out of the equation. Wave goodbye to errors. Let us calculate your inventory forecasting for free for the next two weeks by signing up a 14 day trial.


retail stock forecasting tool
 

Recent Posts

Supply Chain Brief