How can you use rolling forecasts to manage inventory levels?

1 What are rolling forecasts?

Rolling forecasts are a type of forecasting method that updates your projections on a regular basis, usually monthly or quarterly, by adding new data and dropping old data. This way, you can keep your forecasts aligned with the current market conditions, customer preferences, and business goals. Rolling forecasts can help you avoid the pitfalls of static or annual forecasts, which can become outdated and inaccurate as the year progresses.

2 Why use rolling forecasts for inventory management?

Rolling forecasts can help you improve your inventory management in several ways. First, they can help you reduce the risk of overstocking or understocking, which can lead to waste, obsolescence, or lost sales. By using rolling forecasts, you can adjust your inventory levels based on the latest demand and supply trends, and avoid being stuck with excess or insufficient inventory. Second, they can help you optimize your cash flow and profitability, by enabling you to plan your purchasing, production, and distribution activities more efficiently and cost-effectively. By using rolling forecasts, you can align your inventory decisions with your financial objectives, and avoid tying up your capital in unnecessary inventory. Third, they can help you enhance your agility and responsiveness, by allowing you to adapt to changing market situations and customer needs more quickly and easily. By using rolling forecasts, you can incorporate new information and scenarios into your inventory plans, and react to opportunities or threats faster and better.

3 How to use rolling forecasts for inventory management?

To use rolling forecasts for inventory management, you need to follow some steps. First, you need to define your forecast horizon, which is the period of time that you want to forecast for. Typically, this should be at least 12 months, but it can vary depending on your industry and business cycle. Second, you need to select your forecast frequency, which is how often you want to update your forecasts. This can be monthly, quarterly, or any other interval that suits your needs. Third, you need to collect and analyze your data, which can include historical sales, inventory levels, market trends, customer feedback, and other relevant factors. You need to use reliable and consistent data sources, and apply appropriate forecasting techniques and models. Fourth, you need to review and revise your forecasts, by comparing them with the actual results and identifying any gaps or errors. You need to adjust your forecasts accordingly, and communicate them to your stakeholders. Fifth, you need to use your forecasts to guide your inventory actions, such as ordering, producing, storing, and shipping your products. You need to monitor your inventory performance and metrics, and evaluate the impact of your forecasts on your inventory outcomes.

4 What are the benefits of using rolling forecasts for inventory management?

Using rolling forecasts for inventory management can bring many advantages, such as improved accuracy and reliability of forecasts, reduced inventory costs and risks, optimized cash flow and profitability, enhanced agility and responsiveness, and increased collaboration and alignment. The current and future market conditions and customer expectations can be reflected more realistically and timely, avoiding overstocking or understocking. Planning inventory investments and returns can be done more effectively and efficiently, aligning them with financial goals. Adapting to changing market situations and customer needs can be done more quickly, enabling you to seize opportunities or mitigate threats. Involving stakeholders in the forecasting process and sharing forecasts and inventory plans with them more frequently and transparently is also possible.

5 What are the challenges of using rolling forecasts for inventory management?

Using rolling forecasts for inventory management can also pose some challenges. For instance, you may need to collect and analyze more data, and update and revise your forecasts more often, which can lead to increased complexity and workload. Additionally, there is the potential for inconsistency and confusion as you must ensure that your forecasts are compatible with other plans and budgets, as well as make sure stakeholders understand and agree with your forecasts and inventory decisions. Furthermore, there may be resistance and skepticism due to the inertia and bias of using static or annual forecasts; hence, you need to convince stakeholders of the value and validity of using rolling forecasts.

6 How to overcome the challenges of using rolling forecasts for inventory management?

To effectively use rolling forecasts for inventory management, you need to adopt some best practices. This includes using a flexible and scalable forecasting tool or software that can handle large and diverse data sets, apply various forecasting methods and models, and generate and update forecasts easily and automatically. Additionally, clear and consistent forecasting rules and guidelines should be established to define the scope, horizon, frequency, sources, techniques, and formats of your forecasts. Stakeholders should also be engaged and educated in the forecasting process to ensure they are informed of your forecasts and inventory plans. Finally, it is important to measure and improve your forecasting performance to track the accuracy and reliability of your forecasts.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?