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Demand forecasting software adds strength to any business that chooses to use it. Some of the improvements are seen in inventory levels, warehouse operations, finances, customer satisfaction, and more.
There are multiple forecasting methods required to produce an effective and user-friendly forecasting software. The different forecasting methods are categorized into quantitative and qualitative methods. Quantitative data is more historical based and uses numbers and factual inputs. Qualitative methods are based more on opinions, experience, and things that can’t really be measured.
There are four main quantitative methods involved in creating a reliable forecasting software. For the following approaches we will use the example of a retail clothing store. However, you can apply the following examples to your company.
Uses previous data to create a simple projection that the same amount of demand will occur.
Example: You have a retail clothing store, and last year your sandals were very popular. You sold 100 pairs of sandals each week in May-September. As you prepare for the upcoming summer months, you use this data. You plan to sell 100 pairs of sandals each week of May-September again this year.
Uses an average from previous periods and applies it to future forecasts.
Example: Over the last 5 sales periods, your store has sold an average of 45 hoodies each month. Using this average, you plan to sell about 45 hoodies in the next sales period.
Weights specific averages differently when using the moving averages method.
Example: You know you sell more coats in the fall and winter months than you do in spring and summer. This is not only a trend every year, but it’s the same for basically all retailers. When using averages to forecast inventory, you weight October-February differently than you weight the rest of the year. You don’t want to stock your store full of warm winter coats in the middle of summer!
Takes trends into consideration when creating forecasts.
Example: Your store has been selling jeans at a constant rate, but each year in August your jean sales decrease by 35%. When ordering inventory for August, you use this data and order 35% less jeans.
Like with quantitative methods, there are four main quantitative forecasting methods involved in producing accurate forecasts.
A group of executives makes decisions regarding the company’s preparation to meet demand.
Example: Your CEO and Head of Sales review the company’s past sales and make decisions based on where they think sales are heading. They decide to increase your inventory order by 15%.
Reliable advisors come up with an opinion of what they think is going to happen, and then another group of trusted professionals reviews it before presenting a final analysis to the decision makers.
Example: A group of experts predicts your shoe sales are going to double in the next quarter. This opinion is given to another group, they review the analysis and supporting details before passing on the information to the person who decides what and how much inventory to order.
Sales representatives use their personal experiences to predict what’s going to happen.
Example: Your sales team thinks they’re going to be able to increase their sales by 10% each sales period. These predictions are applied to the forecast.
Customers are asked to give their opinions using a survey.
Example: Your company is planning to introduce a new product, and you don’t know how successful it’s going to be. You ask your customers a few questions regarding their interest in the product. These surveys can help you have an idea of what the success of the product will be.
As you can see, there are multiple forecasting methods. You might think some of these methods seem more reliable than others. That’s why it’s important to find a software that takes all these quantitative and qualitative forecasting methods into account when creating a forecast.
Avercast has over 40 years of supply chain experience. In this time, our experts have become even more expert in their field. They’ve created 250+ algorithms that are used in our forecasting software. Using all the above forecasting methods, we can assure you that our software is the most reliable option you’ll find.
If you’re interested in seeing all the benefits that Avercast will bring to your company, you’re in the right place! Feel free to reach out to us today! Our experts would love to share more about specific aspects of your company that will improve with Avercast.
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