April 3, 2007
Volume 3 Issue 106

Inventory Forecasting

          When it comes to seasonal items, like Easter hams, Thanksgiving turkeys, or St. Patrick’s Day Brisket, having the right amount of inventory is critical. In the Northeast part of the United States alone, there were 25 million pounds of Brisket sold the week before St. Patrick’s Day this year. Having too much inventory will cost you money but not having enough will decrease your customer satisfaction. That’s why companies need to take certain steps to ensure that they forecast the right amount.

In the article, “Walking the forecasting tightrope,” Barbara Arnn quotes Debra Ellis stating, “Ellis describes forecasting as 60% history, 20% intuition, and 20% luck.” In order to know how much product you need for the future, you much first know how much you sold in the past. Product history is a major component when it comes to planning future sales of a product. A company should also have an experienced forecaster on staff. In the article, “High Season,” they list 5 simple steps to take when forecasting future sales:

1. Begin with your sales projections. This will give you a jumping off point as to how much inventory you will need. These projections will become the base of your forecast.

2. In order to make your job more manageable, break the forecast into sections. Now you can be more specific in your analysis. It is important to consider promotions or other special events that may boost sales of a product.

3. Once you have divided your forecast into sections you can then break it down to the item level. This makes your forecast that much more accurate.

4. It is now time to gather together all of your inventory costs to make sure you do not order more than you can actually handle. (You can refer back to Issue 64 to help you calculate these costs.) Once you have this information you can then take everything you’ve done with these items and classify them into orders.

5. It is extremely important to keep the communication level up. Allowing for communication will give you more information and therefore make your numbers more precise.

Food software programs can provide great assistance when time comes to forecast. In next week’s article, we will go into more detail about the information they provide. It is important to refer back to the steps above and customize them to your company’s needs. This will help you when implementing a food software package, to make it fit exactly into your business. Along with having a software package, you must also have some level of intuition.

Though these systems can be of great assistance, there are companies who have been very successful just using a spreadsheet. Arnn describes a company named Gardener’s Supply Co. They used spreadsheets to forecast sales for their 2,000 SKUs. They have had outstanding accuracy rates. Since then, they have decided to implement a system for merchandising purposes but say that the inventory aspects of the package are just a plus. They also emphasize having some intuition, describing a time when a catalogue of theirs was put out with a product featured on the back. Once they noticed how well this product was being marketed they realized that they needed more of that product, and sure enough it was a huge seller!

Whether using a system or not, forecasting is a critical part of anyone’s business. It requires knowledge, experience, and customization to get the job done right.

 Forecasting will help you increase your inventory accuracy.

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