Forecasting To Reduce Inventory

Setting higher reorder points because you do not know how sales will be like, and you feel it is better to buffer with higher inventory?

This is a common refrain by companies who are not forecasting well. This is especially useful for products with short lead times, and where space is expensive.

The change in sigma in the safety stock allows you to compare better forecast with current safety stock for savings. There are a number of forecast accuracy measures to choose from, ranging from mean average deviation (MAD) to root mean square error (RMSE).

In terms of savings, there will be capital cost, space and it's corresponding operations savings. More accurate forecast means less rework too.