Configure demand forecasting to fine tune Unusual Demand, Sporadic Demand, Procurement Forecast Assignment, and Projected Purchase Order using the following options:
- Parameters: Forecasting options to fine tune Unusual Demand, Sporadic Demand, Procurement Forecast Assignment, and Projected Purchase Order.
- Formulas: For demand on a warehouse level to calculate Monthly Average usage of the product, which gets broken down to a Weekly Average upon running Projected Purchase Orders.
- Multipliers: To help determine the suggested max quantity for sporadic products.
Warning: These settings default to recommend values and typically do not need to be altered. DDI recommends checking with customer care before making any changes. If you change forecast parameters, you must re-index to apply them. See About reindexing.
To set forecast parameters
- Go to Purchasing > Forecast > Forecast Parameters.
- If you want to change the default settings that apply to all warehouses, do not change the Warehouse option. Applying the same configuration to all warehouses is recommended. If you do need to apply different parameters to a particular warehouse, choose it from the Warehouse list, and then make your changes. When you are ready to return to configuring the defaults for all warehouses, clear the Warehouse box, and then click the Default button at the bottom of the screen.
- Click Edit.
- To set options, click the Parameters, Formulas, or Multipliers tabs along the bottom of the screen. Each are described in more detail below.
Parameters
To configure options specific to Unusual Demand, Sporadic Demand, Procurement Forecast Assignment, or Projected Purchase Orders, click the Parameters tab.
To learn about options applicable to the forecasting method that you want to fine tune, see below:
Unusual Demand
- Low error % multiplier for unusual demand window–A-D ranked products
This value is used to determine the low end of the range when analyzing Unusual Demand. The system forecast is multiplied against this multiplier, where it is then subtracted from the system forecast. If the actual demand falls below this amount, the product is considered to have unusual demand.
A multiplier can be set for each Product Rank. This is done to accommodate the wider range of demand that a slow moving item has compared to a faster moving item. Note that the default value for C & D Ranked products is zero. This keeps the low end of the range at zero, preventing slow moving products from appearing as unusual in the months where no sales occur.
Example: By default, a B ranked product has a Low error % multiplier of .25
A product has a system forecast of 15.
The system forecast is multiplied against the low error % multiplier. (15 x .25) = 3.75
This sets the low range of demand for the product, meaning if the actual demand for the product falls below 11.25, the product would be considered to have Unusual Demand for the month.Recommended Value:
- A Rank: .5
- B Rank: .25
- C Rank: 0
- D Rank: 0
- High error % multiplier for unusual demand window–A-D ranked products
This value is used to determine the high end of the range when analyzing Unusual Demand. The system forecast is multiplied against this multiplier, where it is then added to the system forecast. If the actual demand is above this amount, the product is considered to have unusual demand.
A multiplier can be set for each Product Rank. This to done to accommodate the wider range of demand that a slow moving item has than compared to a faster moving item.
Example:
By default, a B ranked product has a High error % multiplier of 2.
A product has a system forecast of 15.
The system forecast is multiplied against the high error. (15 x 2) = 30.
This value is then added to the forecast value. (15 + 30) = 45
This sets the high range of demand for the product; meaning if the actual demand for the product is above 45, the product would be considered to have Unusual Demand for the month.Recommended Value:
- A Rank: 1
- B Rank: 2
- C Rank: 3
- D Rank: 4
- Sporadic demand maximum expiration days
This value is used to establish the expiration date for maximum stock quantities entered in the Sporadic or Unusual demand screens. These quantities will expire in the number of days set here (compared against today's date).
Note: Max stock quantities should expire so that new demand can be analyzed.
Recommended Value: 180
Sporadic Demand
- Number of months of usage to define a recurring product
This value is used to determine the number of months a product had demand (within a completed twelve month period) to be considered Recurring. This consists of Active, non-seasonal products. The Procurement Forecast Assignment will assign a forecast formula to Recurring products. Any products that fall short of the demand months set here will be considered Sporadic.
Recommended Value: 8 Months
- Number of consecutive months with usage to define a seasonal recurring product
This value is used to determine the number of consecutive months of non-zero demand an Active seasonal product must have to be considered Recurring. The Procurement Forecast Assignment will assign a seasonal forecast formula to Recurring products. Any seasonal products that fall short of the demand months set here will be considered Sporadic.
Recommended Value: 3 Months
- Sporadic demand maximum expiration days
This value is used to establish the expiration date for maximum stock quantities entered in the Sporadic or Unusual demand screens. These quantities will expire in the number of days set here (compared against today's date).
Note: Max stock quantities should expire so that new demand can be analyzed.
Recommended Value: 180
Procurement Forecast Assignment
- Number of months of usage to define a recurring product
This value is used to determine the number of months a product had demand (within a completed twelve month period) to be considered Recurring. This consists of Active, non-seasonal products. The Procurement Forecast Assignment will assign a forecast formula to Recurring products. Any products that fall short of the demand months set here will be considered Sporadic.
Recommended Value: 8 Months
- Number of consecutive months with usage to define a seasonal recurring product
This value is used to determine the number of consecutive months of non-zero demand an Active seasonal product must have to be considered Recurring. The Procurement Forecast Assignment will assign a seasonal forecast formula to Recurring products. Any seasonal products that fall short of the demand months set here will be considered Sporadic.
Recommended Value: 3 Months
- High forecast error % threshold to report on
This value is used to determine if a product should be assigned a forecast formula. When the Procurement Forecast Assignment process runs, products are evaluated against multiple forecast formulas. The formula that produces the closest results to the actual usage gets assigned to the product. If the margin or error of all of the forecast formulas is greater than this error % threshold, a forecast is not automatically assigned. Instead the product is marked as an Exception, which can be reported on for manual evaluation.
Recommended Value: 80%
Projected Purchase Orders
- Number of days before new products get forecast assignment
Newly created products are exempt from Procurement Forecast Assignment. These items will not be projected to buy for unless a Max Stock Qty is set, or the product is committed to orders.
Recommended Value: 180 Days
- Project Products only with minimum number of months with usage in Past 12
This value is used as a way to filter products out of your projected purchasing results. The product must have at least X number of months of demand over the past twelve months, otherwise it is excluded from projections.
Note: This value can be left blank if you do not wish to exclude any products, including those that have had zero demand for the past twelve months. However, it is intended to help filter out Non-Stock products that are incorrectly set as Active/Stock.
Recommended Value: 1
- Project products only with usage within the past "x" months
This value is used as a way to filter products out of your projected purchasing results. The product must have at least one month of demand in the past X number of months, otherwise it is excluded from projections.
Note: This value can be left blank if you do not wish to exclude any products. However, it is intended to help filter out Non-Stock products that are incorrectly set as Active/Stock.
Recommended Value: 10
- Maximum demand trend percentage
This is used to set a cap on the influence Demand Trend has on Projected Purchase Orders. When calculating a reorder quantity, the demand trend is applied, which for a positive demand trend will lead to an increased reorder quantity. If the demand trend of the product exceeds this maximum, then the maximum value is used instead.
Recommended Value: 25
- Carrying cost percentage
This percent value is used to estimate the cost of warehousing excess product, when projecting to meet vendor minimum requirements. When generating a forecast, this Carrying Cost can be used to help decide if a larger purchase order (that meets requirements) is beneficial when considering the cost of keeping the inventory in your warehouse.
When determining this percentage consider all warehousing costs including rent, utilities, shrinkage, insurance, etc. This value is used for all warehouses, so it's best to use a combined average of each warehouses carrying cost.
Note: This is used for reference only and will not have any effect on the system generated reorder quantities.
Recommended Value: 18% - 25%
- Take higher value of max or forecast formula for recurring items (Y)es (N)o
This is used to determine what to do when both a Max Stock Qty and a Forecast Formula exist for a product.
- Yes: The higher Reorder Qty of the two is used.
- No: The Max Stock Qty is used regardless of Forecast Formula.
Once set, a Re-Index of Product Forecast Quantities is necessary to determine a new Reorder Quantity, which will ultimately determine the forecast amount in Projected Purchase Order.
Recommended Value: Y
- Project products only with minimum hits in past 12 months
This value is used as a way to filter products out of your projected purchasing results. The product must have at least X number of Hits over the past twelve months, otherwise it is excluded from projections.
Optionally, this can be used in conjunction with 'Exact Minimum Hits Cost Threshold' which allows an exception to this rule, displaying products with the exact number of hits, so long as the cost is below a fixed amount.
Note: This value can be left blank if you do not wish to exclude any products, including those that have had zero hits for the past twelve months. However, it is intended to help filter out Non-Stock products that are incorrectly set as Active/Stock.
Recommended Value: 2
- Purchase quantity rounding threshold
This value determines if fractional recommended purchase quantities should be rounded up or down. Setting a lower value here will ensure that you meet/exceed your forecast requirements, though may lead to potential overstock.
Example: Recommended purchase quantity is 1.4 Cases of a product.
If this value is set to 5, the recommended quantity would round down to 1 Case.
If this value is set to 4 (or lower), the recommended quantity would round up to 2 Cases.Recommended Value: 5
- Exact minimum hits cost threshold
This dollar amount value is used in conjunction with Project Products only with Minimum Hits in the past 12 months. If a product has the exact number of minimum hits, this setting will determine if a forecast should be generated, based on the cost of the product.
Example: Assume the 'Project Products only with Minimum Hits in the past 12 months' has been set to 2.
If this value is not set, and a product has 2 hits, it will appear in the forecast.
If this value is set to $500, and a product has 2 hits, it will only appear in the forecast if the product cost is less than $500.
This allows you to keep stock of lower-cost items while preventing excessive inventory of costlier items.Recommended Value: Blank
- Build forecast screen projecting with minimum quantities only (Y/N)
This option determines how/if the Minimum Stock Quantity should effect the Reorder Quantity during projected purchasing.
- Yes: Reorder quantity is the Minimum Stock Quantity - Current Available Inventory. With this set, the goal is to replenish inventory up to the minimum stock quantity level.
- No: Reorder quantity will be based on either the Forecast Formula or the Max Stock Qty.
Note: This option is intended for rare circumstances where Min Stock Qty's have been maintained as a Reorder Quantity. This setting is not recommended for most users.
Recommended Value: N
- Number of weeks of stock to determine if an item is overstocked
The Status column of Projected PO will indicate where Overstock is available, allowing you to better make the decision of transferring material versus purchasing it. The Overstock status is calculated during projections as it takes the current Available inventory and deducts projected period usage (based on the projected weeks) to determine the Excess quantity leftover. This Excess amount is then multiplied by the number of weeks set here (asking how many weeks of Excess inventory would you like to keep before the product is flagged for Overstock).
Recommended Value: 8
- Include current period when forecasting qty for seasonal products (Y/N)
This determines which months of demand are analyzed when forecasting for Seasonal products.
- Yes: The current (incomplete) month becomes part of the 12 month demand used by the forecast formulas. This rolls all periods back by one month, allowing seasonal projections to start with the "next" month (from the previous year). This is useful if you wish to begin purchasing the month before you need the product.
- No: The current (incomplete) month is not part of the 12 month demand used by the forecast formulas. The previous twelve completed months of demand are used, allowing seasonal projections to start with the "current" month (from the previous year). This is useful if you wish to begin purchasing during the month you need the product.
Example: Assume the current month is January. If this setting is disabled, then the demand used will run from Jan-Dec of the previous year. This means demand data from the previous January is being used to calculate a Reorder Quantity. Thus your purchasing of the seasonal product is including what's needed for January.
If this setting is enabled, the demand used would run from Feb-Jan (beginning at Feb of last year and ending at Jan of this year). This means demand data from the previous February is being used to calculate a Reorder Quantity. Thus your purchasing of the seasonal product is looking forward to what will be needed for the next month(s).Recommended Value: N
- Default safety stock % A-D ranked products
A reserve amount of stock. Used to determine a reorder point for critical inventory. You can set this value on a per product based on the Product Master. This option configures the default % if that Product Master field is blank. For example, if you set A Ranked products to 20%. then
Reorder Point Formula =[(Weekly Demand) x (Lead Days in weeks) + (Safety Stock)]
(10 per week) x (2 weeks) +(20% safety stock) = 24
Formulas
To customize formulas assigned to products based on demand for each warehouse from which the product is sold, click the Formulas tab. The assigned formula determines the Monthly Average usage of the product, which gets broken down to a Weekly Average upon running Projected Purchase Orders.
Assign formulas to products using Procurement Forecast Assignment: see Automatically assign the forecast formula. Alternatively, you can set formulas manually under the Purchasing tab of the Product Master. See Configure purchasing preferences.
Optionally, the Demand Trend which works in conjunction with these formulas to determine a suggested Reorder Quantity can be disabled on a per formula basis.
To customize formulas, click the Formulas tab.
Review and set the following options:
- 12 Mon Avg: 12 Month Average.
The 12 Month Average formula determines a monthly average by adding demand for the previous twelve months and dividing by twelve. In this formula, all months are weighted equal.Example: A product is being purchased in October. This forecast will look at demand from the prior twelve completed periods.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a twelve month average product, all completed months of demand are considered.
Total 12 Month Demand:
Monthly Average:
Weekly Average:
- 3 Mon Avg: 3 Month Average: The 3 Month Average formula determines a monthly average by adding up demand for the previous three completed months, and then dividing by three. In this formula, all months are weighted equal.
Example: A product is being purchased in October. This forecast will look at demand from July, August, & September.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a three month average product, the last nine months of completed demand are not considered.
Total 3 Month Demand:
Monthly Average:
Weekly Average:
- 5 Mon Wgtd: 5 Month Weighted Average: The 5 Month Weighted formula determines a monthly average on a weighted basis, using the previous five months of demand. The weighted amount varies for each month, but decreases as we move further back through the year. Each month's demand is multiplied against it's weight. These outputs are then combined for a total weighted demand. This amount is then divided by the total weight (10) to determine the monthly average.
Below is the weighted amount based on a 12 month period:
Month 1: 3
Month 2: 2.5
Month 3: 2
Month 4: 1.5
Month 5: 1
Example: A product is being purchased in October. This forecast will look at demand from the previous completed May, June, July, August, & September.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a five month weighted product, the last seven months of completed demand are not considered.
-Month 1:
-Month 2:
-Month 3:
-Month 4:
-Month 5:
Total Weighted Demand:
Monthly Average:
Weekly Average:
The total weighted demand for the seasonal period is 24.5. This value is divided by 10, as that is the total weight amount. - Last Month Heavy Weighted: Determines a monthly average of the last three months, weighting the most recent month most heavily. Each month's demand is multiplied by its weight, and then added for the Total Weighted Demand. This value is divided by the Total Weight to determine the monthly average.
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Example: A product is being purchased in October. This forecast will look at demand from the previous completed May, June, July, August, & September.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a three month weighted product, the last nine months of completed demand are not considered.
-Month 1:
-Month 2:
-Month 3:
Total Weighted Demand:
Monthly Average:
Weekly Average:
The total weighted demand for the seasonal period is 30. This value is divided by 8, as that is the total weight amount to give us a demand of 3.75 - Seasonal: The Seasonal formula determines a monthly average by adding up demand for the next three months from the previous year In this formula, all months are weighted equal.
Example: A product is being purchased in October. This forecast will look at demand from the previous completed October, November, and December.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a seasonal product, the first nine months of completed demand are not considered.
Total 3 Month Demand:
Forecast Quantity:
Warning: The example above assumes Forecast Parameter 'Include Current Period when Forecasting Qty for Seasonal Products' is set to N.
- Seasonal Weighted: The Seasonal Weighted formula determines a monthly average on a weighted basis, utilizing the next three months from the previous year. The weighted amount varies for each month, but increases the closer we get to the current period. Each month's demand is multiplied against it's weight. These outputs are then combined for a total weighted demand. This amount is then divided by the total weight (4.5) to determine the monthly average.
Below is the weighted amount based on a 12 month period:
Month 10: 1
Month 11: 1.5
Month 12: 2
Example: A product is being purchased in October. This forecast will look at demand from the previous completed October, November, and December.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a seasonal product, the first nine months of completed demand are not considered.
Month 10:
Month 11:
Month 12:
Total Weighted Demand:
Monthly Average:
Weekly Average:
The total weighted demand for the seasonal period is 35.5. This value is divided by 4.5, as that is the total weight amount.Warning: The example above assumes Forecast Parameter 'Include Current Period when Forecasting Qty for Seasonal Products' is set to N.
- 5 Month Seasonal: The 5 Month Seasonal formula determines a monthly average by adding up demand for the next five months from the previous year. In this formula, all months are weighted equally.
Example: A product is being purchased in October. This forecast will look at demand from the previous completed October, November, and December.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a seasonal product, the first seven months of completed demand are not considered.
Total 5 Month Demand:
Monthly Average:
Weekly Average:
Warning: The example above assumes Forecast Parameter 'Include Current Period when Forecasting Qty for Seasonal Products' is set to N.
- 5 Month Seasonal Weighted: The 5 Month Seasonal Weighted formula determines a monthly average on a weighted basis, utilizing the next five months from the previous year. The weighted amount varies for each month, but increases the closer we get to the current period. Each month's demand is multiplied against it's weight. These outputs are then combined for a total weighted demand. This amount is then divided by the total weight (10) to determine the monthly average.
Below is the weighted amount based on a 12 month period:
Month 8: 1
- Month 9: 1.5
- Month 10: 2
Month 11: 2.5
Month 12: 3
Example: A product is being purchased in October. This forecast will look at demand from the previous completed October, November, December, January, and February.
Current Month 1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12 October Sep Aug Jul Jun May Apr Ma Feb Jan Dec Nov Oct 2 5 1 3 0 1 1 3 6 8 5 11 7
As this is a seasonal product, the first seven months of completed demand are not considered.
Month 8:
Month 9:
Month 10:
Month 11:
Month 12:
Total Weighted Demand:
Monthly Average:
Weekly Average:
The total weighted demand for the seasonal period is 76.5. This value is divided by 10, as that is the total weight amount. Warning: The example above assumes Forecast Parameter 'Include Current Period when Forecasting Qty for Seasonal Products' is set to N.
Multiplier
To determine the Suggested Max Qty for Sporadic products, click the Multipliers tab.
When the suggested value is calculated the output is then multiplied based on the Cost and Hits of the product. This increases the Reorder Quantity for popular low cost products.
The system calculated Suggested Max Stock Qty (as seen in the Sporadic screen) uses these multipliers to control inventory levels based on both product popularity (Hits) and Cost. This allows for increased inventory levels on popular lower cost products, while potentially reducing inventory levels on slow moving high cost products.
The Suggested Max Stock Qty is calculated by using either a median average or mode formula on the invoice quantities sold in the past twelve completed months. That is then multiplied against the values set here; the output of which becomes the new Suggested Max Stock Qty.
Example: A product has 5 Hits and a $10.00 Cost.
-The median average of the past completed twelve month invoice quantities is 4.
-The multiplier for a product with more than 4 Hits and a Cost less than $50.00 is 3.
-The median average of 4 is multiplied by 3 to establish a Suggested Max Stock Qty of 12.
Given the low cost of the product, keeping 12 in stock will have minimal impact to overall inventory value.