Inventory Management: Naïve Forecasting

Keeping up with the day-to-day tasks of inventory management can feel like an endless struggle. For new business owners, it can be difficult to keep track of the levels of your current stock and estimating how much stock to order in the future. Using forecasting models, you will not be guessing anything. You will be able to know exactly when to order more inventory and how much you will need to order.

There are many methods and models you can follow for great forecasting. Learning about all of them is necessary. Check out these articles on demand forecasting and all the forecasting techniques. This article is all about Naïve Forecasting.

Naïve Forecasting

Naïve forecasting is the simplest version of forecasting. This method takes the data you collect from a given time period then used to predict future results. So, if you sold 150 units this month, the prediction would be that you will sell 150 units next month. This will also help you with how much to order when you restock.

This method unfortunately does not take into account any market variables. This method would not be able to factor in competitors, holidays or any shifts in the shopping habits of your customers. Naïve forecasting, although the simplest method, is the least reliable inventory forecasting technique.

This method is most useful when you compare it to other methods of forecasting. Use the information you get from naïve forecasting as a general baseline. This can point out errors or outliers that you would need to be aware of when you are trying to manage your inventory correctly.

To use this method, determine what time frames you want to compare. You can do month-to-month, year-to-year, or even the same month from each year. You then simply carry the inventory numbers from the time period you decided on and apply them to your current month. You will then have a clear picture of what the typical stock numbers look like and try to point out any low or high numbers.

Inventory management is a process that is never ending. You have so many factors that affect the overall outcome of this process. Knowing and understanding the multiple techniques for forecasting that is available to you, will help you have the tools you need for effective management of your inventory without any stretches of time with overstock or understocked products.