Use demand forecasting to quickly determine how much stock you need to order and create purchase orders directly from the inventory reports page. When used in combination with out of stock measures and the forecasting demand tool, this feature enables you to streamline your inventory management.

You can use this feature to:

• Facilitate accurate purchase orders, helping maintain good relationships with suppliers and ensuring timely replenishment.
• Simplify the purchase order process, making it easier to manage an expanding inventory and supplier base.
• Ensure all purchase orders are documented and tracked within the same system, enhancing traceability and accountability.

Creating purchase orders from forecasted demand is best for:

• Situations where you reorder existing catalog items from suppliers consistently.
• Top selling products that have a high volume of sales. Products that sell infrequently and special order items are less ideal for this feature because there isn’t enough data to support an accurate recommendation. Items without sufficient data will not be included in forecasts.

The use of this forecasting tool is at the user’s own risk. Lightspeed cannot guarantee the accuracy and reliability of the forecasts generated. Actual results may differ. The tool is provided for informational purposes only and should not be considered as financial, investment, or legal advice. Users are encouraged to exercise caution before making business decisions based on the tool’s output.

Understanding demand forecasting calculations

Items sold per day (excluding stock outs)

The Items sold per day (excluding stock outs) calculation is based on how many units were sold in a 6 week period minus the number of days the item was out of stock. For example, if a product sold 50 units in the last 6 weeks (42 days) but was out of stock for 10 days, the calculation would be 50 units divided by 32 days (42-10) = 1.5 items sold per day (excluding stock outs). This number is then used to calculate missed items sold, forecasted demand, and suggested order quantity.

Missed sales

The Missed sales column is calculated by multiplying Items sold per day (excluding stock outs) by the number of out of stock days from the last 6 weeks of historical data. Following our example, if a product sold 1.5 units per day (excluding stock outs) and was out of stock for 10 days, there would be 15 units that could have been sold if it wasn't out of stock.

Forecasted demand

Forecasted demand identify SKUs with recurring seasonal spikes across two or more years. For identified seasonal SKUs, the forecast is based on the prior year's sales volume for the corresponding period, rather than recent sales trends. Non-seasonal and new SKUs will be forecasted using the existing Last 6 weeks sales data method

The calculations are based on Items sold per day (excluding stock outs) to determine how much stock you will need for a forecasted time period and how much you should order to meet that need. The system looks to historical sales data to make these calculations.

By analyzing in-stock days, the system ensures there is sufficient historical data to generate accurate sales rates for both high and low volume items, leading to more reliable recommendations.

To determine stock needs, the system multiplies items sold per day (excluding stockouts) by the number of days in the forecasted period. For example, if a product sells 1.5 units per day (excluding stockouts) and the forecasted period is 6 weeks (42 days), you would need 63 units to meet projected demand.

Suggested order quantity

The Suggested order quantity column is calculated by taking the Forecasted demand number and subtracting closing and inbound inventory from it. If you want to include missed sales, enable the Factor missed sales into the demand forecast checkbox. If you don't include missed sales, the forecast will only include the average data without factoring in the missed sales. This ensures that the recommendation takes into account any inventory you currently hold or are expecting to arrive from suppliers or other outlets. For example, if you need 63 units to meet forecasted demand and have 50 units currently in stock, and no inbound inventory, you would need to order 13 units to meet projected demand.

Understanding replenishment models

You can create purchase orders from forecasted demand based on these replenishment models:

• Warehouse model: You have a central warehouse location that receives stock and holds inventory for your retail stores until needed. You transfer items where they’re required from this warehouse.
• Distribution model: You receive stock at a central location and distribute immediately to your retail locations. Most or all product inventory is held at retail locations, not a central warehouse.
• Direct ordering model: You receive stock and hold inventory at individual retail locations.

You may use a combination of these models as part of your complete replenishment workflow. For example, you may have a product that you order in very large quantities that you keep at a warehouse until individual stores require more. In this situation, you would use the warehouse model.

You may also have products that are specific to individual stores that you distribute immediately upon receiving at the warehouse. For this you would use the distribution model.

For some products, inventory is managed at individual outlets and is delivered directly to that location. In this situation, you would use the direct ordering model.

Creating purchase orders using the warehouse model

If you hold stock at a central location and frequently transfer to your retail locations, format the report to view totals. This ensures calculations take into account all inventory, including retail locations and what’s in the warehouse waiting to be sent.

For this situation, the Suggested order quantity column displays the additional units of stock required to meet upcoming demand, above what stock is already available to be sent to the store network from the warehouse.

1. Navigate to Reports > Inventory reports > Replenishment.
2. Format the report:
   1. Report type is set to SKU name.
   2. Measure is set to All inventory.
   3. Date range is set for the period you want to forecast for.
3. Select More filters to Include or Exclude customers, customer groups, or promotions, in your forecast. This refines your forecast data by factoring in or removing staff purchases or promotional sales and focusing instead on genuine sales.
4. Click Search.

   

5. Click Format results > Show totals only > Apply. This will ensure your entire inventory is included in the calculations.

   

6. The Forecasted demand column will display how much inventory of each product you will need for the forecasted date range you selected. The Suggested order quantity column will display how many additional units are needed to meet the demand.

   

7. Select the checkbox beside each product you want to order. After selecting products, the Create purchase order button will display in the SKU name column header.
8. Click the Create purchase order button after selecting all the products you want to order.

   

9. Select your warehouse location from the dropdowns for both Ordering for and Delivery recipient.

   

10. Click Next.
11. Under the Quantity column, add the amount you want to order for each product. The table will display your current inventory and the suggested order quantity.

    

12. Click Add products to order. This will create a new purchase order for the products. You won't be able to edit the supplier or the deliver to fields after you create the purchase order.

Creating purchase orders using the distribution model

If you order to a warehouse and distribute straight to your retail locations, set the report to view by outlet. This ensures the calculation is based on what each of your individual locations needs, as there is no extra stock held in the warehouse.

For this situation, the Suggested order quantity column displays the amount of stock that each store needs to meet expected demand, having taken into account that store’s current and inbound inventory.

1. Navigate to Reports > Inventory reports > Replenishment.
2. Format the report:
   1. Report type set to SKU name.
   2. Measure set to All inventory.
   3. Date range set for the period you want to forecast for.
3. Click More filters and use the Include filter to filter by supplier, if required.
4. Click Search.

   

5. Click Format results > By Outlet > Apply. This will ensure calculations are formatted for each outlet.

   

6. The Forecasted demand column will display how much inventory of each product you will need for the selected forecasted date range. The Suggested order quantity column will display how many additional units are needed to meet the demand.

   

7. Click the checkbox beside each product you want to order and click Create purchase order.

   

8. Select which outlets you are ordering for from the Ordering for dropdown and your warehouse location for Delivery recipient.

   

9. Click Next.
10. Under the Quantity column, the amounts for each location will be pre-populated depending on each store's suggested order quantity. You can edit quantities if required.

    The suggested order quantity calculation takes into consideration how much stock is in inventory across the store network. If there is sufficient inventory across the store network that could be relocated rather than reordered, the suggested order quantity for that product will be zero.

11. Click Add products to order. This will create a new purchase order for the products. You will not be able to edit the supplier or the deliver to fields after you create the purchase order.

For more information, refer to our Sending and receiving purchase orders for multiple locations article.

Creating purchase order using the direct ordering model

If you place orders for a specific location to be delivered directly to that location, format your report to display only that location by adding the Include filter and entering the outlet. This ensures the calculations are based on only what stock that outlet needs.

For this situation, the Suggested order quantity column displays the amount of stock the store needs to meet expected demand. It includes the store’s current and inbound inventory.

1. Navigate to Reports > Inventory reports > Replenishment.
2. Format the report:
   1. Report type set to SKU name.
   2. Measure set to All inventory.
   3. Date range set for the period you want to forecast for.
3. Select More filters for the Include filter, filter by outlet and supplier if required. 
4. Click Search.

   

5. The Forecasted demand column will display how much inventory of each product you will need for the selected forecasted date range. The Suggested order quantity column will display how many additional units are needed to meet the demand.

   

6. Click the checkbox beside each product you want to order and click Create purchase order.

   

7. Select the outlet you are ordering for from the Ordering for and Delivery recipient dropdowns. If you only have one outlet, it will be preselected.

   

8. Click Next.
9. Under the Quantity column, add the amount you want to order for each product. The table will display how much inventory you have on hand and the suggested order quantity.
10. Click Add products to order. This will create a new purchase order for the products. You will not be able to edit the supplier or the deliver to fields after you create the purchase order.

Editing and sending the purchase order

You can view your purchase order from the banner at the top of the screen or from the Inventory page.

1. Navigate to Inventory > Stock control.
2. Click the pencil icon beside the purchase order.

   

3. Add delivery date, invoice number, notes, or edit the products in the purchase order, if required.
4. Record any discount, shipping fees, or import duties.
5. Click Save and send.

   

For more information about purchase orders, refer to our Creating a purchase order article.

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