SKU FORECASTING- LEVERAGING AI/ML
WHAT IS SKU FORECASTING?
Stock Keeping Unit or SKU is a unique code given to a product by a retailer or a manufacturer to keep track of their inventory. Typically, it is a combination of numbers and letters that helps manage and organize stock levels, track sales and streamline operations.
Businesses aim to predict future product demand to manage their inventory effectively by analysing historical data, market trends, and other variables.
WHY DO YOU NEED SKU FORECASTING IN MANUFACTURING?
Cost Savings
Reduce cost reduces excess inventory and minimizes in the need for urgent shipments to address stockouts
Minimizing Stockouts
Avoid stockouts by accurately predicting demand for different scales, avoid Lost sales and dissatisfied customers.
Reducing Overstocks
Prevent overstock situations, reduce storage costs and minimize obsolescence.
Optimizing Inventory Levels
Maintain optimal stock levels at all times and have enough inventory to meet customer demand.
Improved Customer Satisfaction
Enhance customer satisfaction levels by meeting customer demands and fostering loyalty.
Better Decision Making
Data extracted from SKU forecasting empowers businesses to make informed decisions regarding production.
TECHNIQUES USED FOR SKU FORECASTING
Businesses often combine multiple techniques and tools to achieve more accurate SKU forecasts, leveraging the strengths of each method to accommodate the specific characteristics of their products and market dynamics.
- Time-series Analysis: Analyze historical sales data to identify patterns, trends, and seasonality.
- Regression Analysis: Establishing connections between variables such as price, promotions, and sales volume predictions made for future demands.
- Artificial Intelligence and Machine Learning: Using AI/ML technologies forecasting can be performed on large datasets and identify complex patterns.
BEST PRACTICES FOR EFFECTIVE SKU FORECASTING
- Establish proper data collection processes and ensure data accuracy.
- Involve key stakeholders across departments to gather insights and inputs for more accurate predictions.
- Regularly review and refine forecasting models to adapt to changing market conditions and improve accuracy.
REAL WORLD SCENARIOS FOR SKU FORECASTING
A consumer electronics manufacturer employs SKU forecasting to anticipate the demand for different models of smartphones and tablets. By analyzing market trends, historical sales data, and upcoming product launches, the manufacturer can optimize production schedules, manage component procurement, and ensure that the right product mix is available to meet customer demand.
A beverage distributor uses SKU forecasting to predict the demand for various flavors and package sizes of soft drinks. By considering factors such as seasonal variations, promotional activities, and regional preferences, the distributor can optimize stocking levels, minimize wastage, and ensure that popular products are always available for customers.
An automotive parts distributor applies SKU forecasting to anticipate the demand for specific car parts based on historical sales data, vehicle models in circulation, and upcoming maintenance schedules. By accurately forecasting demand for individual parts, the distributor can optimize inventory levels, prevent stockouts, and streamline the supply chain operations.
IMPACT ON SUPPLY CHAIN MANAGEMENT
Inventory Optimization
Get accurate demand forecast for specific products and maintain the right amount of stock to meet customer demand while minimizing excess inventory and reducing carrying costs.
Order Fulfilment Efficiency
Knowing which products are in high demand allows for efficient picking, packing, and shipping operations, leading to improved customer service and fulfillment accuracy.
Supplier Relationships
Help your suppliers to adjust their production schedules, inventory levels, and delivery timelines to match the anticipated demand, fostering strong and collaborative supplier relationships.
Cost Reduction
Align inventory levels with actual demand, minimize storage costs, avoid lost sales due to stockouts, and reduce the need for expedited shipping to replenish inventory.
Production Planning
Adjust your production schedules, allocate resources efficiently, and optimize manufacturing processes based on accurate SKU forecasts.
Logistics and Distribution
Anticipate the demand for specific products in different regions, plan transportation routes, warehouse locations, and distribution strategies more effectively, reducing lead times.
Strategic Decision Making
Identify trends, plan for seasonal variations, optimize inventory replenishment cycles, and make informed decisions that drive overall supply chain efficiency and performance.
