What are the key factors and data sources that influence your inventory forecasting and optimization?

3 Inventory costs

The third factor that affects your inventory forecasting and optimization is the inventory cost of your products. Inventory cost includes the cost of purchasing, holding, and ordering the goods. Purchasing cost is the price you pay to your supplier for each unit of product. Holding cost is the cost of storing, handling, and maintaining the goods in your warehouse. Ordering cost is the cost of placing, processing, and receiving an order from your supplier. Inventory costs can vary depending on the product's characteristics, such as size, weight, shelf life, and demand variability. Higher inventory costs mean that you need to optimize your inventory levels and turnover to reduce your expenses and improve your cash flow.

4 Data quality

The fourth factor that affects your inventory forecasting and optimization is the quality of your data. Data quality refers to the accuracy, completeness, consistency, and timeliness of your data. Poor data quality can lead to inaccurate forecasts, wrong decisions, and poor performance. For example, if your sales data is incomplete or outdated, you may overestimate or underestimate your demand and end up with excess or insufficient inventory. Therefore, you need to ensure that your data is collected, stored, and analyzed properly and regularly. You also need to use appropriate data sources, such as historical sales, market research, customer feedback, and industry trends.

5 Forecasting methods

The fifth factor that affects your inventory forecasting and optimization is the forecasting method that you use. Forecasting methods are mathematical models that use your data to generate predictions of your future sales. There are many forecasting methods available, such as moving average, exponential smoothing, regression, and machine learning. Each method has its own advantages and disadvantages, depending on the type of data, demand pattern, and accuracy level that you need. Therefore, you need to choose the right forecasting method for your products and scenarios. You also need to evaluate and update your forecasts regularly and compare them with your actual sales.

6 Optimization techniques

The sixth factor that affects your inventory forecasting and optimization is the optimization technique that you use. Optimization techniques are mathematical models that use your forecasts and inventory costs to determine the optimal order quantity and reorder point for each product. There are many optimization techniques available, such as economic order quantity, reorder point, safety stock, and service level. Each technique has its own assumptions and limitations, depending on the type of product, demand variability, and inventory policy that you need. Therefore, you need to choose the right optimization technique for your products and objectives. You also need to monitor and control your inventory performance and adjust your parameters accordingly.