In addition to ABC Analysis, it is also necessary to understand inventory demand trends. There are two common approaches to forecasting demand:
Simple Moving Averages
This is a simple technique which looks at the demand for recent periods and assumes the demand for the coming period will be an average of the past. For monthly demand forecasts, a good rule of thumb is to take an average of the past 6 months. Table 2 shows a Simple Moving Average forecast:
| Month | Usage |
|---|---|
| January | 450 |
| February | 190 |
| March | 600 |
| April | 600 |
| May | 420 |
| June | 380 |
| Total | 2.640 |
| July Forecast (2.640/6) | 440 |
Table 2: Simple Moving Average Forecast
Each month, the forecast moves on a step which is why it is a “moving” forecast. Therefore, the forecast for August ignores January and takes an average of the usage from February to July.