Compare two sales forecasting methods:
· Static Forecast: Orders placed based on a single, initial forecast for the entire season.
· Dynamic Forecast: Orders placed for a short initial period, then updated based on actual sales and used for the remaining season.
Data Setup:
1. Products: Select 5-10 products (P1, P2, P3, P4, P5).
2. Initial Forecast: Enter an initial sales forecast unit for each product. For example, 200 units for P1. 100 units for P2, 250 units for P3……
3. Sales Period: Set the sales period to 90 days
4. Daily Sales: Calculate daily sales for each product by dividing the forecast by the sales period. Example, P1= 200/90= 2.22 units per day.
5. Initial Order: Specify the initial order quantity for the first 20 days. E.g. 44 units for P1
6. Sales Monitoring Period: Define the sales monitoring period as 14 days
7. Costs & Prices: Set a cost price for each product assuming a 63% gross margin
Dynamic Forecast Simulation:
1. Actual Sales: Enter actual daily sales for each product during the monitoring period (14 days).
2. Updated Forecast: Based on actual sales data, revise the initial forecast for the remaining period (Days 21-90). This can be done using various methods like historical averages, trend analysis, or simply adjusting based on observed trends. Update the forecast.
3. Remaining Order: Calculate the remaining order quantity for each product by subtracting the initial order from the updated forecast for the remaining period.
Static Forecast Simulation:
1. Lost Sales/Excess Inventory: In a separate section, track lost sales (opportunities missed due to insufficient stock) or excess inventory (unsold units) for the static forecast scenario based on the initial forecast and actual sales data.
Analysis:
1. Sales Revenue: Calculate sales revenue for both scenarios by multiplying the actual daily sales (Dynamic) or forecasted daily sales (Static) by the selling price.
2. Profit: For the dynamic scenario, calculate profit by subtracting the cost price from the sales revenue
3. Leftover Stock: Calculate leftover inventory for the dynamic scenario by subtracting actual sales from the total received quantity (initial order + remaining order).
4. Markdown Revenue: If there’s leftover stock, calculate markdown revenue by multiplying the leftover quantity by a markdown percentage (e.g., 50%).
5. Total Revenue: Calculate the total revenue for the dynamic scenario by summing sales revenue and markdown revenue (if applicable).
Comparison:
Compare the total revenue, lost sales/excess inventory, and profit between the two scenarios to assess the effectiveness of the dynamic forecasting approach.
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