Demand Forecasting and Ordering Policy of Fast-Moving Consumer Goods with Promotional Sales in a Small Trading Firm

Abstract

This research focuses on enhancing inventory management for fast-moving consumer goods (FMCGs) with promotional sales in a small trading company, particularly high-end items with fluctuating demand patterns. The analysis revealed that promotional campaigns led to an average demand increase of 60.44% for WM 85ML, and 161.76% for SW 85ML, highlighting the importance of including these variables in demand forecasting models. The research aims to determine an effective forecasting method for the company and develop an improved purchasing strategy. The methodology encompasses a comprehensive review of the existing system, problem investigation, solution proposal, and result analysis. Quantitative time-series forecasting methodologies specifically tailored to such luxury FMCGs were introduced including Exponential Smoothing and Holt-Winters’s Additive and Multiplicative forecasting. The application of these methods has led to a significant enhancement in forecast accuracy, with an approximate 90% improvement. The research's pivotal contribution is the development of a hybrid order policy named “Periodic Review with Safety Stocks and Reorder Point,” which merges a fixed-order quantity model with a fixed-time period model. This hybrid approach has practical implications for maintaining efficient inventory levels, enabling continuous promotional activities, and potentially reducing the company's inventory costs by approximately 30%.