So how does this relate to inventory optimization in the online environment? Everything...think about the correlations; forecasting at higher grains, field sales integration, data mining, algorithmic strategy and modeling, post-hoc testing, simulation, ephemeral inventory, seasonality, inventory performance affinities, margin hits on channel routing to remnant etc...
Like 1998 in manufacturing the online industry is rapidly innovating on inventory (read "yield") optimization. Sophisticated solutions are popping up along with some rising startups; The Rubicon Project, Yieldex, Pubmatic, AdMeld to name a few. Each with a different flavor for improving yield, some more technically oriented, some more strategically oriented. Throw into the mix multiple channels (and channel conflicts, oh boy fun) for selling the inventory; in-house sales, ad networks, ad exchanges, of which I know a few things ;), and you have an amazing transformation in the industry. Now we just have to figure out how to make it all work together. So let's get back those forecasting books. Here is a refresher on some key concepts:
- Extrapolative Methods - Find a pattern(trend) to the historical time series and assume that the pattern will continue into the future.
- Explanatory Methods - Determine the factors which explain the past behavior of the variables to be forecast.
- Judgmental Methods - Methods which rely, not upon a statistical analysis of the historical data, but on Managerial expertise, feedback from Sales Reps and Customer surveys.
My experience is that you use all three and over time strive to find the right mix of the three and the right mix of possibilities within the three.
- Leading Indicators - Provide advance notice
- Concurrent Indicators - Provide confirmation at the time of the event
- Lagging Indicators - Provide notice after the event
While it is tempting to dismiss Lagging Indicators, they are useful for post-hoc tests of new econometric models (Extrapolative Methods) due the "Assumption of Constancy" (the patterns of the past indicate the patterns of the future.)
Special thanks to Dr. Len Tashman director of the Institute for Forecasting Education and editor of Foresight - The International Journal of Applied Forecasting for his many years of support and mentoring. Contact the Institute if your company is looking for an evaluation of your revenue and/or inventory forecasting methods.Fair Use Policy: Please include the name: Edward Boettcher and the following link: The Product Messenger when referencing this information. All content (c) 2009 Edward Boettcher