3 Steps of Forecastability Analysis

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First, let’s cover “What Is Forecastability Analysis? In essence, this refers to appraising your company’s demand scheduling challenges while helping employees focus on addressing demand variability. This process entails segmenting items in unique ways so that you can establish and apply the appropriate supply chain policies for production and inventory planning.

You can also use this process to evaluate how profitable the company’s products are. The result is a set of defined rules to be applied to accomplish improvements in the bottom line.

Steps of Forecastability Analysis

Forecastability analysis assesses the challenges you face with demand planning. The insights gained can help your business address the hurdle of focusing on your demand planning approach and effective use of stakeholders’ time.

Below are the three crucial steps that you must cover to achieve a good forecastability analysis:

Step #1 – Demand History Analysis

This initial step involves evaluating your actual sales history for each product. You’ll also begin segmenting the products based on their relative value. Analyzing your demand history will also reveal the different factors that affect the demand in your company.

Step #2 – Selecting a Practical Forecast Strategy

At this stage, the different approaches you use in forecasting will be evaluated to determine the ones with the highest accuracy. The process entails checking out statistical and non-statistical methods, various product hierarchies, promotion/event modeling, and product lifecycle curves.

Step #3 – Quadrant Analysis

This final step gets to the actionable results of the analysis. The different products will be grouped and segmented based on their relative value and ease of forecast. You’ll end up with a final set of practical policies for driving inventory, capacity building, and prediction.

For instance, if you have products with higher forecastability, you’ll require an automated forecast, and responsible staff should be there to monitor any exceptions. Those with low value and low forecastability require management with inventory policies instead of wasting time carrying out direct forecasting.

The ability to classify products and items based on their “forecastability” attributes benefits the business. For instance, you’ll easily pick the forecasting approach that works for each item, and you can quickly identify those that can be automatically forecasted. It’s an excellent way of measuring how difficult it is to predict different products.

Company staff and stakeholders without direct responsibility for forecasting may have unrealistic expectations of the process’s accuracy. Measuring “forecastability” will give them a deeper understanding of the different issues in an objective, data-driven way, especially for items that are “lumpy “or almost impossible to forecast.

Key Takeaway

Forecastability analysis is a novel approach for entrepreneurs to enhance their forecast accuracy and improve the forecasting process. Conducting this exercise also helps you develop an excellent road map for demand and inventory planning.

The improved policies and enhanced accuracy will optimize your production and inventory execution strategy. Consequently, you will reduce your inventory levels while increasing your customer service. The overall business outcome of these improvements is an improved margin.

StockIQ offers a reliable planning software solution for efficient supply chain operations and accuracy with your demand forecasting. Not only do we help you manage your inventory, your clients and shippers will also benefit a great deal from the exceptional experience and unmatched service.

Contact us today so we can begin finding the right inventory solutions to improve your bottom line.

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