The Smart Forecaster
Pursuing best practices in demand planning, forecasting and inventory optimization
We are often asked what the difference is between these two important performance metrics for inventory planning. While they are both important for measuring how successful a business is in meeting demand, their meaning is very different. If not understood and incorporated into the strategic inventory planning process, inventory will be inefficiently allocated resulting in lower customer service and higher carrying costs. We’ve illustrated the difference in this 4 minute recording using Microsoft Excel.
Smart Operational Analytics automatically calculates historical service levels & fill rates across any item. To see how you calculate these and other operational metrics including inventory turns, supplier performance, and more register below to watch a five minute demonstration. The demo will show how our cloud platform continuously calculates and reports these metrics across thousands of items helping you identify opportunities for service level improvement and inventory reduction.
There are three possible types of forecasts that can be used in demand and inventory planning processes. Point forecasting, interval forecasting, and probabilistic forecasting. Each type of forecast offers progressively more information to inventory managers that will enhance the planning process. In this video blog, Dr. Thomas Willemain explains the differences and highlights the advantages that probabilistic forecasting offers. In summary, knowing more is always better than knowing less and the probability forecast provides additional information that is crucial for inventory planning.
Undershoot means that the lead time begins not at the reorder point but below it. Undershoot happens every time the demand that breached the reorder point took the stock down below (not down to) the reorder point. Undershoot picks your pocket before you even begin to roll the dice. It deludes the inventory professional into thinking his or her reorder points are sufficient to achieve their targets, whereas actual performance will not make the grade.
Service level and fill rate are two important metrics for measuring how effectively customer demand is satisfied. These terms are often confused and understanding the differences can help improve your inventory planning process. This video blog (Vlog) helps illustrate the difference with a simple example using Excel