Demand Pattern Identification determines the demand category of your inventory items, so that the system can use the proper formula when calculating their future demand. When possible, the system examines an item’s history back three years. The system will not recommend or allow you to assign the seasonal to seasonal trend demand categories to items with less than three years of history. Also, the system does not recommend or allow you to assign the slow, erratic, or trend demand categories to items with less than a year of history.
When calculating the demand category for an item, the system uses the following process:
Step 1: Identification of Slow Movers
Using one year’s worth of demand, the system first tests the selected items for slow movers. It does this by summing the filtered demand for the last year running, and comparing it to the system setting for moderate velocity items. If the previous year’s demand for this item is less than the system setting for moderate velocity items, the system tags the item as a slow mover, and the processing for that item-location is done. Otherwise, the system moves to step 2.
Step 2. Identification of Seasonal Items
Demand in a given period is composed of trend, seasonal, and random components. To estimate the seasonal indices, the system performs a calculation using the ratio to moving average method to arrive at a value called the seasonal factor.
To calculate this, the system first sums the demand for four periods. These four periods don’t always coincide with fiscal quarters, as they represent seasons. This is called the centered four quarter moving average.
Then the system then takes each of the four periods in the season and one by one divides their demand by the centered four quarter moving average. The resulting value is the seasonal factor. The system treats as seasonal any item that has a seasonal factor of 1.35 in the same quarter for consecutive years.
Step 3: Identification of Erratic Items
Once the system identifies which items are slow, it further refines its search and determines which of the slow items are actually erratic. It applies the following criteria to all items tagged slow:
50% or more of the periods within each quarter have no demand
Demand filters were tripped in two or more periods within the past year
If either of these conditions test true, the system labels the item erratic.
Step 4: Identification of Seasonal/Trend or Trend Items
If the system does not label an item slow or erratic, it suggests the trend category if the average change up or down is greater than the trend target percent over the target number of periods. An item can be both seasonal and trend.
Step 5: Identification of Level Demand Items
If the system has not yet applied a label to the item by this stage in the analysis, it suggests the level category.
Step 6: Update the Item/Location with the Identified Demand Pattern
After running the Item Demand Pattern Identification Routine, the system updates the Replenishment tab in Item Maintenance. See page 38 for more information.
Note: Activant recommends you run Demand Pattern Identification for all your items at least every two years in order to account for any changes in sales activity that might change the item’s demand category.
Demand Pattern Identification is an option in the Inventory Transaction menu. It has the tabs Query, Form View, and Demand Pattern Identification.
Form View Tab
The Form View tab in Demand Pattern Identification is effectively a criteria tab for selecting which inventory items the system should analyze and make suggestions for a demand category.
Field: Description:
Demand Identification Criteria
You can save the criteria you enter in this tab, allowing you to recall them and use them again later instead of re-entering them manually every time you want to use them. When you save these criteria, the system assigns the criteria an ID number, which appears in this field.
Company ID The company for which you want to run the inventory analysis.
Location ID The range of locations for which you want to run the inventory analysis.
Item ID The range of items for which you want to run the inventory analysis.
Product Group The range of product groups for which you want to run the inventory analysis.
Supplier The range of suppliers for which you want to run the inventory analysis.
ABC Class The range of ABC classes for which you want to run the inventory analysis.
Current Demand Pattern
There is one checkbox in this area for each demand category the system uses in advanced demand forecasting. The system will only return items that meet the system criteria for the categories you check here.
Last Evaluation Date The system only evaluates items that were last evaluated on this date or earlier.
Warn if Trend Exceeds %
If the item’s trend exceeds the percent value entered in this field, the system marks it as a trend exception in the Demand Pattern Identification tab. In short, you can use this setting to flag exceptional demand that should be investigated.
Once you enter the criteria in this tab, click the Apply Query button to process your inventory. The system combs through the inventory records as defined by your criteria and displays the results, along with its recommendations, in the Demand Pattern Identification tab.
Demand Pattern Identification Tab
Once you run a set of demand pattern identification criteria, the system displays all results in this tab.
Results appear in alphanumeric order by item ID, grouped together by location ID.
Each item appears in its own row, which displays the following information:
Item ID
Item Description
Current Demand Pattern
Suggested Demand Pattern
Trend Exception – the system checks this checkbox if the item’s trend percentage is higher than the value entered in the Warn if Trend Exceeds % field in the Form View tab.
New Demand Pattern – enter the trend category you want to assign this item here.
You may not set an item to seasonal or seasonal/trend for an item unless you’ve had it in stock for more than a year.
Select – the New Demand Pattern field only becomes active if you enable this checkbox.
Item Maintenance
The Replenishment tab in Item Maintenance contains a new section dealing with demand.
Field: Description:
Advanced Demand Forecasting
This drop down menu determines how the system assigns a demand category to the item.
Setting: Description:
Type The item is assigned a demand category based on either the demand pattern identification algorithm, or manual designation.
Choosing this setting activates the Demand Pattern field, which defaults to the demand pattern identified by the demand pattern identification algorithm (or Level, if you haven’t run the algorithm for this item).
Behaves Like The item is assigned the same demand pattern as another item. This might be a different item at the same location, the same item at a different location, or a different item at a different location.
Whatever you select, it should be an item/location combination that you expect has the same demand pattern as this item.
This setting is helpful for a new item that has no history, but that you expect to track like the demand pattern of a known item.
Choosing this setting activates the Location ID and Item ID fields, which become mandatory.
Demand Pattern If you set the Advanced Demand Forecasting field to Type, this field becomes active. This drop down menu contains the different types of demand patterns available in the system, and defaults to the one the system deemed the best fit after running the demand pattern
identification algorithm, or Level, if you haven’t run the algorithm for this item.
Though the system defaults a value in this field, you are free to change the suggested demand pattern anytime you like. The demand pattern selected in this field is the one the system uses for anticipating demand and making purchasing recommendations.
Location ID This field becomes active when you set the Advanced Demand
Forecasting field to Behaves Like. Behaves Like tells the system that the demand pattern of one item is close to the demand pattern of the item you entered in Item Maintenance, and that it should use the same demand forecasting method. Location ID is the location that holds that the item the system should look to for demand forecasting information.
Item ID This field becomes active when you set the Advanced Demand
Forecasting field to Behaves Like. Behaves Like tells the system that the demand pattern of one item is close to the demand pattern of the item you entered in Item Maintenance, and that it should use the same demand forecasting method. Item ID is the item the system should look to for demand forecasting information. The item entered here must have its Advanced Demand Forecasting field set to Type; you cannot set an item to behave like an item set to Behaves Like.
Behaves Like Lock This checkbox becomes active when you set the Advanced Demand Forecasting field to Behaves Like. When you activate it, you can set a period and year as the last one on which the item will behave like another item.
This is useful for new items that don’t have enough sales history to make an accurate demand forecast assessment. You can instead make them behave like another, similar item for a time while you accumulate sales history, and then run the demand pattern identification algorithm to generate a demand pattern specifically for that item.
Lock Period/Year These fields become active when you enable the Behaves Like Lock. On the period and year entered here, the item’s Advanced Demand
Forecasting setting automatically changes from Behaves Like to Type, meaning it no longer mimics another item in determining its demand pattern.
Important! The system requires a year’s worth of inventory history to accurately determine an item’s demand pattern.
When you enter a period and year in this field, make sure you allow enough periods to allow the system to collect at least a year’s worth of data.
You may decide to set a usage lock for 6 months, and then a Behaves Like lock for the next 6 months.