The Smart Forecaster
Pursuing best practices in demand planning,
forecasting and inventory optimization
Improve Forecast Accuracy, Eliminate Excess Inventory, & Maximize Service Levels
In this Video Dr. Thomas Willemain, co–Founder and SVP Research, talks about forecast-based inventory management policy, also known as MRP logic. This is the fourth in our series on major approaches to managing inventory. We begin by looking at some very simple and then more robust models of inventory dynamics that help us determine how much to order or manufacture and when. We then consider how to calculate lead time and account for lead time variability. Tom concludes by describing the importance of safety stock, it’s role in properly buffering against demand and supply uncertainty, and how best to calculate it.
You may remember the story of Goldilocks from your long-ago youth. Sometimes the porridge was too hot, sometimes it was too cold, but just once it was just right. Now that we are adults, we can translate that fairy tale into a professional principle for inventory planning: There can be too little or too much inventory, and there is some Goldilocks level that is “just right.” This blog is about finding that sweet spot.
You know the situation: You work out the best way to manage each inventory item by computing the proper reorder points and replenishment targets, then average demand increases or decreases, or demand volatility changes, or suppliers’ lead times change, or your own costs change.
Managing the inventory across multiple facilities arrayed in multiple echelons can be a huge challenge for any company. The complexity arises from the interactions among the echelons, with demands at the lower levels bubbling up and any shortages at the higher levels cascading down.