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Quick 3min Video Results to Demand Forecasting VS Sales Forecasting for Inventory Replenishment

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We know millennials along with the rest of us learn better watching a video. YouTube and others have littered the internet with misinformation they call demand forecasting. Because the software says demand forecasting doesn’t mean it is demand forecasting, ha – obvious, right? Did you know there are differences in demand forecasting and sales forecasting? Google ‘Demand Forecasting videos’ and the top results are all using sales forecasting methodology, Not Demand. The inventory results caused by people using sales forecasting are costing companies millions of dollars. If demand forecasting and sales forecasting for inventory replenishment are the same, why use two different words: demand and sales? Most forecast videos talk about forecasting techniques and at some level forecast algorithms. The truth is the forecast algorithms for demand forecasting and sales forecasting can be the same. The key difference between demand and sales forecasting is the data being used in those algorithms.
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Data Profits’ New Video Shows the Difference: Demand Forecasting vs Sales Forecasting for Inventory Replenishment in Retail and Wholesale

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ATLANTA, April 27, 2017 – The Data Profits Team has noticed the most Frequent Question we receive is “What is The Difference Between Demand Forecasting and Sales Forecasting?” In fact, our most-read blog of all time deals with this subject. Even though this blog post is over 5 years old, it still attracts thousands of users to our website www.data-profits.com each month.

Data Profits’ goal is to educate our customers and readers/viewers of our blogs, SlideShare presentations, and YouTube videos.

Data Profits’ Video: “See Differences Between Demand Forecasting and Sales Forecasting for Inventory Replenishment”

We realize that millennials and others learn better by watching a video rather than reading a blog. Therefore, we introduced a new video that helps explain the Difference Between Demand Forecasting and Sales Forecasting. Click Here to watch our new video. Even if you feel you know Difference Between Demand Forecasting and Sales Forecasting, you may pick up a few tips for educating others.

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See Differences Between Demand Forecasting and Sales Forecasting for Inventory Replenishment

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Demand Forecasting software will measure and account for Lost Sales, overstock and closeouts. These are three pitfalls of not having a demand forecasting software solution. Sales forecasting methods doom you to repeat last years sales. Without real Demand Forecasting, tracking lost sales is only a KPI.

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Great Sales Forecasting Equals Out of Stock

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Sales Forecasting is a measure of the market response; it is not a measure of market demand. However, the problem with this is that simple; the most accurate sales forecast is only a measure of market response to what is available. This is not accurate when considering future market demand. Issues with constrained supply, service levels, price, and promotion are not analyzed correctly.  Yet, this is why sales forecasting is responsible for out-of-stock and overstock in many companies.
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Why Sales Forecasting Systems are Wrong for Inventory Replenishment

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Sales Forecasting is the wrong tool for inventory replenishment and inventory planning. Sales Forecasting, by its very name itself, is a measure of total sales. In our last article, we discussed that the key difference between sales forecasting and demand forecasting is whether (or not) sales data is broken out into the type of sale, analyzed, and the results input into the forecasting algorithms. Sales type might include any or all of the following: regular, lost, promo, event, and closeout sales. Without the knowledge that sales went up or down due to market factors like out of stock and promotions, a sales forecasting system will forecast based only on the total sales. This may not be the intended goal for inventory replenishment or inventory management.

Key Limitations to Sales Forecasting

Sales Forecasting, by its very nature, doesn’t know why sales rise or fall and cannot connect events to sales behavior. For example, when sales were down 20% four weeks ago, you probably knew this was due to constrained supply which created out of stock issues. The sales forecasting system will react to the 20% drop by lowering the forecast. The resulting inventory replenishment orders from the new forecast will be low, creating a repeat scenario of lost sales again next month.
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Differences between Demand Forecasting and Sales Forecasting for Inventory Replenishment

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Demand Forecasting and Sales Forecasting are different, and the results of each can have a dramatic impact on your profitability. Demand Forecasting and Sales Forecasting should be calculated with some similar and some different data points. While closely related, the two resulting forecast numbers will not be the same in most business situations. The forecast results will impact the inventory replenishment by impacting available inventory, expected inventory orders, and sales. An inventory replenishment system that is based on a demand forecast (demand driven) can reduce the risk of lost sales while improving service. This in turn delivers higher sales by connecting inventory levels with demand forecast.

What is Sales Forecasting

Sales Forecasting is the easier of the two choices: you load your sales history into the sales forecast engine and the system delivers a sales forecast. Sales Forecasting is critical for the retail business to create financial plans with the banks, plan sales growth, and plan resource strategies. Sales Forecasting systems have a ‘vanilla’ approach that is clean and simple, and it works without issues for the most basic of products. Legacy systems often will pair the sales forecasting with their demand planning tools to determine inventory replenishment for the business. Read more

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