6 Types Of Demand Forecasting

There are several different ways to do demand forecasting. Your forecast may differ
based on the forecasting model you use. Best practice is to do multiple demand
forecasts. This will give you a more well-rounded picture of your future sales. Using
more than one forecasting model can also highlight differences in predictions. Those
differences can point to a need for more research or better data inputs.

1. Passive Demand Forecasting

Passive demand forecasting is the simplest type. In this model, you use sales data from
the past to predict the future. You should use data from the same season to project
sales in the future, so you compare apples to apples. This is particularly true if your
business has seasonal fluctuations.

The passive forecasting model works well if you have solid sales data to build on. In
addition, this is a good model for businesses that aim for stability rather than growth. It’s
an approach that assumes that this year’s sales will be approximately the same as last
year’s sales.

Passive demand forecasting is easier than other types because it doesn’t require you to
use statistical methods or study economic trends.

2. Active Demand Forecasting

If your business is in a growth phase or if you’re just starting out, active demand
forecasting is a good choice. An active forecasting model takes into consideration your
market research, marketing campaigns, and expansion plans.

Active projections will often factor in externals. Considerations can include the economic
outlook, growth projections for your market sector, and projected cost savings from
supply chain efficiencies. Startups that have less historical data to draw on will need to
base their assumptions on external data.

3. Short-Term Projections
Short-term demand forecasting looks just at the next three to 12 months. This is useful
for managing your just-in-time supply chain. Looking at short-term demand allows you
to adjust your projections based on real-time sales data. It helps you respond quickly to
changes in customer demand.

If you run a product lineup that changes frequently, understanding short-term demand is
important. For most businesses, however, a short-term forecast is just one piece of a
larger puzzle. You’ll probably want to look further out with medium- or long-term
demand forecasting.

4. Long-Term Projections
Your long-term forecast will make projections one to four years into the future. This
forecasting model focuses on shaping your business growth trajectory. While your long-
term planning will be based partly on sales data and market research, it is also
aspirational.

Think of a long-term demand forecast as a roadmap. Using this forecasting technique,

you can plan out your marketing, capital investments, and supply chain operations. That
will help you to prepare for future demand. Being ready for your business growth is
crucial to making that growth happen.

5. External Macro Forecasting

External macro forecasting incorporates trends in the broader economy. This projection
looks at how those trends will affect your goals. An external macro demand forecast can
also give you direction for how to meet those goals.

Your company may be more invested in stability than expansion. However, a

consideration of external market forces is still essential to your sales projections.
External macro forecasts can also touch on the availability of raw materials and other
factors that will directly affect your supply chain.

6. Internal Business Forecasting

One of the limiting factors for your business growth is internal capacity. If you project
that customer demand will double, does your enterprise have the capacity to meet that
demand? Internal business demand forecasts review your operations.
The internal business forecasting type will uncover limitations that might slow your
growth. It can also highlight untapped areas of opportunity within the organization. This
forecasting model factors in your business financing, cash on hand, profit margins,
supply chain operations, and personnel.

Internal business demand forecasting is a helpful tool for making realistic projections. It
can also point you toward areas where you need to build capacity in order to meet
expansion goals.

What is a supply chain strategy?

A supply chain strategy is like a roadmap that helps companies get their products to
customers with as little friction as possible. This plan ensures that every phase of the
supply chain is optimized, including the sourcing of materials, manufacturing, delivery,
and logistics.

Four factors usually influence an organization’s supply chain strategy:

1. Industry
2. Company value proposition
3. Internal decision-making processes
4. Business goals
There are five key capabilities to consider that will help give you an inclusive view of
your end-to-end network when beginning to develop your supply chain strategy:

1. Supply Sense: What’s possible in your supply chain

2. Supply Response: Operations that make things happen, such as manufacturing and
asset management

3. Deciding and Committing: Orchestrating your end-to-end capabilities

4. Demand Sense: Learning, knowing and monitoring what your customers want

5. Demand Response: Order fulfillment processes that help give customers what they
want

To develop your optimized end-to-end supply chain strategy, it is critical to develop

and integrate all five of these capabilities.

Supply chain management (SCM) involves the movement of products and services from
suppliers to distributors. SCM involves the flow of information and products between
and among supply chain stages to maximize profitability.
The major functions involved in SCM are the procurement of raw materials, product
development, marketing, operations, distribution, finance, and customer services.
Customers are an integral part of SCM.

The objective of supply network or SCM is to maximize the overall value. Value is
correlated to supply chain profitability. Here, profitability is the difference between the
total revenue generated from the customer and the overall supply chain costs.

Strategies and designing of the supply chain include:

• Deciding on the supply chain structure and the activities each stage of the supply
chain will perform
• Selecting a location and capacities of facility
• Deciding on the products that are to be made and the location where they need
to be stored
• Choosing the modes of transportation and the source from where the information
is to be collected
value chain
What is a value chain?
A value chain is a concept describing the full chain of a business's activities in
the creation of a product or service -- from the initial reception of materials all
the way through its delivery to market, and everything in between.

The value chain framework is made up of five primary activities -- inbound

operations, operations, outbound logistics, marketing and sales, service -- and
four secondary activities -- procurement and purchasing, human resource
management, technological development and company infrastructure.

A value chain analysis is when a business identifies its primary and secondary
activities and subactivities, and evaluates the efficiency of each point. A value chain
analysis can reveal linkages, dependencies and other patterns in the value chain.

The value chain concept was first described in 1985 by Harvard Business School
professor Michael Porter, in his book Competitive Advantage: Creating and
Sustaining Superior Performance.

A
diagram of a value chain's five primary activities and four secondary activities.
Primary activities
Primary activities contribute to a product or service's physical creation, sale,
maintenance and support. These activities include the following:

• Inbound operations. The internal handling and management of resources

coming from outside sources -- such as external vendors and other supply
chain sources. These outside resources flowing in are called "inputs" and
may include raw materials.

• Operations. Activities and processes that transform inputs into "outputs" --

the product or service being sold by the business that flow out to
customers. These "outputs" are the core products that can be sold for a
higher price than the cost of materials and production to create a profit.

• Outbound logistics. The delivery of outputs to customers. Processes

involve systems for storage, collection and distribution to customers. This
includes managing a company's internal systems and external systems
from customer organizations.

• Marketing and sales. Activities such as advertising and brand-building,

which seek to increase visibility, reach a marketing audience and
communicate why a consumer should purchase a product or service.

• Service. Activities such as customer service and product support, which

reinforce a long-term relationship with the customers who have purchased
a product or service.
Secondary activities
The following secondary activities support the various primary activities:

• Procurement and purchasing. Finding new external vendors, maintaining vendor

relationships, and negotiating prices and other activities related to bringing in the
necessary materials and resources used to build a product or service.
• Human resource management. The management of human capital. This includes
functions such as hiring, training, building and maintaining an organizational
culture; and maintaining positive employee relationships.

• Technology development. Activities such as research and development, IT

management and cybersecurity that build and maintain an organization's use of
technology.

• Company infrastructure. Necessary company activities such as legal, general

management, administrative, accounting, finance, public relations and quality
assurance.
Benefits of value chains
The value chain framework helps organizations understand and evaluate sources of
positive and negative cost efficiency. Conducting a value chain analysis can help
businesses in the following ways:

• Support decisions for various business activities.

• Diagnose points of ineffectiveness for corrective action.

• Understand linkages and dependencies between different activities and areas in

the business. For example, issues in human resources management and
technology can permeate nearly all business activities.

• Optimize activities to maximize output and minimize organizational expenses.

• Potentially create a cost advantage over competitors.

• Understand core competencies and areas of improvement.

SCM - Performance Measures

Supply chain performance measure can be defined as an approach to judge the
performance of supply chain system. Supply chain performance measures can broadly
be classified into two categories −
 • Qualitative measures − For example, customer satisfaction and product quality.
• Quantitative measures − For example, order-to-delivery lead time, supply chain
response time, flexibility, resource utilization, delivery performance.
The performance of a supply chain can be improvised by using a multi-dimensional
strategy, which addresses how the company needs to provide services to diverse
customer demands.

Quantitative Measures
Mostly the measures taken for measuring the performance may be somewhat similar to
each other, but the objective behind each segment is very different from the other.
Quantitative measures is the assessments used to measure the performance, and
compare or track the performance or products. We can further divide the quantitative
measures of supply chain performance into two types. They are −

• Non-financial measures
• Financial measures

Non - Financials Measures

The metrics of non-financial measures comprise cycle time, customer service level,
inventory levels, resource utilization ability to perform, flexibility, and quality. In this
section, we will discuss the first four dimensions of the metrics −
Cycle Time
Cycle time is often called the lead time. It can be simply defined as the end-to-end delay
in a business process. For supply chains, cycle time can be defined as the business
processes of interest, supply chain process and the order-to-delivery process. In the
cycle time, we should learn about two types of lead times. They are as follows −

• Supply chain lead time

• Order-to-delivery lead time
The order-to-delivery lead time can be defined as the time of delay in the middle of the
placement of order by a customer and the delivery of products to the customer. In case
the item is in stock, it would be similar to the distribution lead time and order
management time. If the ordered item needs to be produced, it would be the summation
of supplier lead time, manufacturing lead time, distribution lead time and order
management time.
The supply chain process lead time can be defined as the time taken by the supply
chain to transform the raw materials into final products along with the time required to
reach the products to the customer’s destination address.
Hence it comprises supplier lead time, manufacturing lead time, distribution lead time
and the logistics lead time for transport of raw materials from suppliers to plants and for
shipment of semi-finished/finished products in and out of intermediate storage points.
Lead time in supply chains is governed by the halts in the interface because of the
interfaces between suppliers and manufacturing plants, between plants and
warehouses, between distributors and retailers and many more.
Lead time compression is a crucial topic to discuss due to the time based competition
and the collaboration of lead time with inventory levels, costs, and customer service
levels.
Customer Service Level
The customer service level in a supply chain is marked as an operation of multiple
unique performance indices. Here we have three measures to gauge performance.
They are as follows −
• Order fill rate − The order fill rate is the portion of customer demands that can be
easily satisfied from the stock available. For this portion of customer demands,
there is no need to consider the supplier lead time and the manufacturing lead
time. The order fill rate could be with respect to a central warehouse or a field
warehouse or stock at any level in the system.
• Stockout rate − It is the reverse of order fill rate and marks the portion of orders
lost because of a stockout.
• Backorder level − This is yet another measure, which is the gauge of total
number of orders waiting to be filled.
• Probability of on-time delivery − It is the portion of customer orders that are
completed on-time, i.e., within the agreed-upon due date.
In order to maximize the customer service level, it is important to maximize order fill
rate, minimize stockout rate, and minimize backorder levels.
Inventory Levels
As the inventory-carrying costs increase the total costs significantly, it is essential to
carry sufficient inventory to meet the customer demands. In a supply chain system,
inventories can be further divided into four categories.

• Raw materials
• Work-in-process, i.e., unfinished and semi-finished sections
• Finished goods inventory
• Spare parts
Every inventor
y is held for a different reason. It’s a must to maintain optimal levels of each type of
inventory. Hence gauging the actual inventory levels will supply a better scenario of
system efficiency.
Resource Utilization
In a supply chain network, huge variety of resources is used. These different types of
resources available for different applications are mentioned below.
• Manufacturing resources − Include the machines, material handlers, tools, etc.
• Storage resources − Comprise warehouses, automated storage and retrieval
systems.
• Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.
• Human resources − Consist of labor, scientific and technical personnel.
• Financial resources − Include working capital, stocks, etc.
In the resource utilization paradigm, the main motto is to utilize all the assets or
resources efficiently in order to maximize customer service levels, reduce lead times
and optimize inventory levels.

Finanacial Measures
The measures taken for gauging different fixed and operational costs related to a supply
chain are considered the financial measures. Finally, the key objective to be achieved is
to maximize the revenue by maintaining low supply chain costs.
There is a hike in prices because of the inventories, transportation, facilities, operations,
technology, materials, and labor. Generally, the financial performance of a supply chain
is assessed by considering the following items −
• Cost of raw materials.
• Revenue from goods sold.
• Activity-based costs like the material handling, manufacturing, assembling rates
etc.
• Inventory holding costs.
• Transportation costs.
• Cost of expired perishable goods.
• Penalties for incorrectly filled or late orders delivered to customers.
• Credits for incorrectly filled or late deliveries from suppliers.
• Cost of goods returned by customers.
• Credits for goods returned to suppliers.
In short, we can say that the financial performance indices can be merged as one by
using key modules such as activity based costing, inventory costing, transportation
costing, and inter-company financial transactions.

A Framework for Structuring Supply Chain Drivers

Supply chain managers have to undertake research and development efforts to improve
both responsiveness and efficiency of their supply chains on a continuous basis. In the past
there were technological and managerial breakthroughs which improve one of them without
any deterioration in the other and also improvement in both dimensions simultaneously.
Actual economic theory tells, new technologies (capital investments) are adopted for capital
productivity. Capital productivity in the context of supply chains comes through
improvement in responsiveness and efficiency.

But at a certain point in time, there can be tradeoffs between responsiveness and
efficiency. Hence supply chain designers come with supply chains that give various
combinations of responsiveness and efficiency (responsiveness - efficiency frontier) and the
optimal combination is chosen based on the competitive strategy considerations.

Definition/Explanation of Four Drivers

Inventory: It consists of all raw material, work in process, and finished goods within a
supply chain.

Transportation: It involves moving inventory from one point in the supply chain to another
point.

Facilities: A facility is a place where inventory is stored, manufactured or assembled. Hence

facilities can be categorised into production facilities and storage facilities.

Information: It consists of data and results of analysis regarding inventory, transportation,

facilities, customer orders, customers, and funds.

Inventory
Inventory is maintained in the supply chain because of mismatches between supply and
demand.

Types of inventory based on reasons for keeping them:

Cycle inventory: This results due to producing or buying larger lots to minimize acquisition
costs related to processing each purchase order or production order.

Safety Inventory: It is held to counter against uncertainty or variability of demand.

Seasonal Inventory: It is inventory maintained to satisfy higher demands in a period
compared to production capacity. It arises due to the decision to service predicted variability
in demand through extra production during slack period or low demand periods.

Increasing inventory gives higher responsiveness but results in higher inventory carrying
cost.
Transportation

Number of decisions have to be taken in designing a supply chain regarding transportation.

Decisions Mode of Transportation Six basic modes exist

Air
Truck (Road)
Rail
Ship
Pipeline
Electronic transportation (the newest mode for music, documents etc.)
Facilities

Within a facility, inventory is either transformed into another state or stored.

Facilities Related Decisions

Location
Capacity
Manufacturing Methodology or Technology Warehousing methodology.

Information
Information does not have a physical presence. It is likely to be overlooked. But it deeply
affects every part of supply chain. Information is the connection between various stages in a
supply chain and allows them to coordinate actions and increase the maximum supply chain
profitability. It is also essential in daily operations. The stocks available in warehouses must
have visibility so that when a customer wants an item, it can be delivered to him.

Obstacles to Achieving Strategic Fit

Increasing Variety of Products: In the era of mass customization production variety is
increasing.
The customers becoming increasingly demanding. Today's customers are demanding faster
fulfillment, better quality, and better performing products for the same price that they are
paying today.

The supply chain is getting fragmented. At one time vertical integration was the order of the
day. But the present trend is to concentrate on core competence and outsource more
activities. Thus the supply chain is more fragmented now.

Globalization is creating global supply chains and hence physical distance is increasing
between a company and its suppliers and a company and its customers.

While creating a strategy is difficult, executing it is much more difficult. Many companies
understand Toyota Production System now, but still find it difficult to implement and
operate.

What is outsourcing in supply chain management?

SCM outsourcing the entire supply chain management activity of an organisation to an

external organisation that specializes in the same. Outsourcing the supply chain
management helps in minimizing overall cost, focus on its core competencies, meet
customer demands more effectively and avail greater flexibility in maintaining and
operating its supply chain. While outsourcing the SCM activities, organisations take care
of integration issues that they might face, when an external organisation manages the
supply chain, which is the backbone of the organisation. If integration phase is taken
care of and the third party organisation has expertise and prior experience in managing
the supply chain of other organisations, SCM can provide strategic advantage to an
organisation.

The Wheel of Five: Manage

predictable variation with effective
decision-making
Home / Publications / Articles / The Wheel of Five: Manage predictable variation with effective decision-making
To help organizations recognize and effectively deal with good and bad variability,
Involvation has developed the Wheel of Five for Supply Chain Management. This third part
in a series of five articles is about effective decision-making.
‘Variability will always degrade performance of a production system,’ according to Hopp &
Spearman. ‘If you don’t reduce the variability, you will pay the price in the shape of
depletion, high stocks and/or long and unreliable lead times.’ In other words, it makes sense
to minimize the variability. But what exactly is variability?
Variability occurs when there is a mismatch between the variation in demand and the
variation in supply. Therefore, the most ideal solution is to either eliminate or absorb the
variation that causes the variability.
If that is not completely possible, you will be left with residual variation. In that case, it is
wise to synchronize the variation in supply and demand. You will still be left with variation,
but no variability. This often comes down to managing the demand variation with flexible
capacity – the possibility to increase or reduce capacity, either temporarily or fundamentally.

Dennis Pronk (pictured) from Involvation: ‘To do this, you need reliable insight into the likely
demand variation, the flexibility to manage this and – last but not least – an effective
decision-making process in order to take the necessary action. As a result, IBP, S&OP and
forecasting clearly have a place in this Wheel of Five as a way of organizing and feeding the
decision-making.’

balanced scorecard
What is a balanced scorecard (BSC)?
The balanced scorecard is a management system aimed at translating an
organization's strategic goals into a set of organizational performance
objectives that, in turn, are measured, monitored and changed if necessary to
ensure that an organization's strategic goals are met.
The balanced scorecard approach examines performance from four
perspectives.

• Financial analysis,which includes measures such as operating income,

profitability and return on investment.

• Customer analysis, which looks at investment in customer service and

retention.

• Internal analysis,
which looks at how internal business processes are linked
to strategic goals.

• assesses employee satisfaction and

The learning and growth perspective
retention, as well as information system.
Elements of a balanced scorecard
In their 1993 paper, Kaplan and Norton offered guidance on how to build a balanced
scorecard. The process they discussed applies to business units and describes what
they refer to as "a typical project profile" for developing balanced scorecards.

In brief, here are the eight actionable steps they list.

1. Preparation. The organization identifies the business unit for which a top-level
scorecard is appropriate. Broadly defined, this is a business unit that has its own
customers, distribution channels, production facilities and financial goals.

2. The first round of interviews. A balanced scorecard facilitator interviews senior

managers for about 90 minutes each to obtain input on strategic goals and
performance measures.

3. First executive workshop. Top management convenes with the facilitator to start
developing the scorecard by reaching a consensus on the mission and strategy
and linking the measurements to them. This can include video interviews with
shareholders and customers.
4. The second round of interviews. The facilitator reviews, consolidates and
documents input from the executive workshop and interviews each senior
executive to form a tentative balanced scorecard.

5. Second executive workshop. Senior management, their subordinates and a

larger number of middle managers debate the vision, strategy and the tentative
scorecard. Working in groups, they discuss the measures, start to develop an
implementation plan and formulate "stretch objectives for each of the proposed
measures."

6. Third executive workshop. Senior executives reach a consensus on the vision,

objectives and measurements hashed out in the prior two workshops and
develop stretch performance targets for each measure. Once this is complete, the
team agrees on an implementation plan.

7. Implementation. A newly formed team implements a plan that aims to link

performance measures to databases and IT systems, to communicate the
balanced scorecard throughout the organization and to encourage the
development of second-level metrics for decentralized units.

8. Periodic reviews. A quarterly or monthly "blue book" on the balanced scorecard

measures is prepared and viewed by managers. The balanced scorecard metrics
are revisited annually as a part of the strategic planning process.
 What Is Inventory Management?
Inventory management helps companies identify which and how much stock
to order at what time. It tracks inventory from purchase to the sale of goods.
The practice identifies and responds to trends to ensure there’s always
enough stock to fulfill customer orders and proper warning of a shortage.

Once sold, inventory becomes revenue. Before it sells, inventory (although

reported as an asset on the balance sheet) ties up cash. Therefore, too much
stock costs money and reduces cash flow.

One measurement of good inventory management is inventory turnover. An

accounting measurement, inventory turnover reflects how often stock is sold
in a period. A business does not want more stock than sales. Poor inventory
turnover can lead to deadstock, or unsold stock.

Why Is Inventory Management Important?

Inventory management is vital to a company’s health because it helps make

sure there is rarely too much or too little stock on hand, limiting the risk of
stockouts and inaccurate records.

Public companies must track inventory as a requirement for compliance with

Securities and Exchange Commission (SEC) rules and the Sarbanes-Oxley
(SOX) Act. Companies must document their management processes to prove
compliance.

Benefits of Inventory Management

The two main benefits of inventory management are that it ensures you’re
able to fulfill incoming or open orders and raises profits. Inventory
management also:

▪ Saves Money:
Understanding stock trends means you see how much of and where you have
something in stock so you’re better able to use the stock you have. This also
allows you to keep less stock at each location (store, warehouse), as you’re
 able to pull from anywhere to fulfill orders — all of this decreases costs tied up
in inventory and decreases the amount of stock that goes unsold before it’s
obsolete.

▪ Improves Cash Flow:

With proper inventory management, you spend money on inventory that sells,
so cash is always moving through the business.

▪ Satisfies Customers:
One element of developing loyal customers is ensuring they receive the items
they want without waiting.

Inventory Management Challenges

The primary challenges of inventory management are having too much

inventory and not being able to sell it, not having enough inventory to fulfill
orders, and not understanding what items you have in inventory and where
they’re located. Other obstacles include:

▪ Getting Accurate Stock Details:

If you don’t have accurate stock details,there’s no way to know when to refill
stock or which stock moves well.

▪ Poor Processes:
Outdated or manual processes can make work error-prone and slow down
operations.

▪ Changing Customer Demand:

Customer tastes and needs change constantly. If your system can’t track
trends, how will you know when their preferences change and why?

▪ Using Warehouse Space Well:

Staff wastes time if like products are hard to locate. Mastering inventory
management can help eliminate this challenge.

Learn more about the challenges and benefits of inventory management.

 What Is Inventory?

Inventory is the raw materials, components and finished goods a company

sells or uses in production. Accounting considers inventory an asset.
Accountants use the information about stock levels to record the correct
valuations on the balance sheet.

Learn more about inventory in the article “What Is Inventory?”.

Inventory vs. Stock

Inventory is often called stock in retail businesses: Managers frequently use

the term “stock on hand” to refer to products like apparel and housewares.
Across industries, “inventory” more broadly refers to stored sales goods and
raw materials and parts used in production.

Some people also say that the word “stock” is used more commonly in the
U.K. to refer to inventory. While there is a difference between the two, the
terms inventory and stock are often interchangeable.

Inventory Management Techniques and Terms

Some inventory management techniques use formulas and analysis to plan

stock. Others rely on procedures. All methods aim to improve accuracy. The
techniques a company uses depend on its needs and stock.

Find out which technique works best for your business by reading the guide to
inventory management techniques. Here’s a summary of them:

▪ ABC Analysis:
This method works by identifying the most and least popular types of stock.

▪ Batch Tracking:
This method groups similar items to track expiration dates and trace defective
items.
▪ Bulk Shipments:
This method considers unpacked materials that suppliers load directly into
ships or trucks. It involves buying, storing and shipping inventory in bulk.

▪ Consignment:
When practicing consignment inventory management, your business won’t
pay its supplier until a given product is sold. That supplier also retains
ownership of the inventory until your company sells it.

▪ Cross-Docking:
Using this method, you’ll unload items directly from a supplier truck to the
delivery truck. Warehousing is essentially eliminated.

▪ Demand Forecasting:
This form of predictive analytics helps predict customer demand.

▪ Dropshipping:
In the practice of dropshipping, the supplier ships items directly from its
warehouse to the customer.

▪ Economic Order Quantity (EOQ):

This formula shows exactly how much inventory a company should order to
reduce holding and other costs.

▪ FIFO and LIFO:

First in, first out (FIFO) means you move the oldest stock first. Last in, first out
(LIFO) considers that prices always rise, so the most recently-purchased
inventory is the most expensive and thus sold first.

▪ Just-In-Time Inventory (JIT):

Companies use this method in an effort to maintain the lowest stock levels
possible before a refill.

▪ Lean Manufacturing:
This methodology focuses on removing waste or any item that does not
provide value to the customer from the manufacturing system.
▪ Materials Requirements Planning (MRP):
This system handles planning, scheduling and inventory control for
manufacturing.

▪ Minimum Order Quantity:

A company that relies on minimum order quantity will order minimum amounts
of inventory from wholesalers in each order to keep costs low.

▪ Reorder Point Formula:

Businesses use this formula to find the minimum amount of stock they should
have before reordering, then manage their inventory accordingly.

▪ Perpetual Inventory Management:

This technique entails recording stock sales and usage in real-time. Read
“The Definitive Guide to Perpetual Inventory” to learn more about this practice.

▪ Safety Stock:
An inventory management ethos that prioritizes safety stock will ensure
there’s always extra stock set aside in case the company can’t replenish those
items.

▪ Six Sigma:
This is a data-based method for removing waste from businesses as it relates
to inventory.

▪ Lean Six Sigma:

This method combines lean management and Six Sigma practices to remove
waste and raise efficiency.