OPERATIONAL FORECASTING

It’s fundamental planning horizon in every well estabilished company. Short-term forecasting takes mostly under consideration 3 to 6 months, depending on needs and lenght of Supply Chain. It’s the most granular level of Forecasting, going in to Stock Keeping Unit (SKU). There are many possible hierarchies, below is one sample, used in food producing Company.

Product Hierarchy

In example seen above, business needed to follow trends of sales on their own shops. It was crucial to see which of them have negative trends and understand what drives that negative trend of sales. That’s why, the main Forecst was done on Level 3 (Stores) and then disaggregated to lower levels, based on probability and historical patterns. Also there was aggregation done to higher levels, to give to management holistic view on business trends and do they need some corrective actions.

Main reasons of high granularity of Operational Forecast, is that it’s main input to production cycle. Based on information prepared in Forecasting proces, products are manufactured. Incorrect sales prediction can cause either overstock or stock-outs. Each of them are highly problematic for every company.

Forecast Errors

Research findings show that a typical retailer loses about 4 percent of sales due to having items out-of-stock. A loss of sales of 4 percent translates into an earnings per share loss of about $0.012 (1.2 cents) for the average firm in the grocery retailing sector, where the average earnings per share, already is about $0.25 (25 cents) per year.

Well developed Forecasting process in short term can give company additional edge in cost reducstion and on-shelf availability. Which translates in to higher profit margin. There is always some sort of pattern in sales, no matter how volatile it appears. Our job is to find that pattern and give you the advantage that you need.

Example below shows Monthly Forecast done for customer. It’s one on Shop level and then proportionally divided in to products. Based on such data Customer can see which shops have negative trends in sales, like one below. Next step was preparing analysis on the root causes o such trend, which was alos done by Analyze 10K. It resulted in portfolio optimisation, change of promotional mechanisms and price optimisation.

Operational Forecast