Demand sensing is a new technique of forecasting. This technique uses mathematical methods on real-time information to calculate a forecast of demand with higher accuracy. The higher accuracy of demand sensing reduces forecast error by a significant margin, compared to traditional and conventional forecasting techniques. Inventory optimization, on the other hand, has two parts, optimization of safety stock and optimization of cycle inventory. Though cycle inventory is optimized predominantly by linear programming method, safety stock is the direct function of forecast error and service level. If demand sensing and inventory optimization techniques are used together efficiently, it will allow the enterprise to function in make-to-forecast (MTF) model which will ensure higher forecast accuracy, higher inventory turn, low inventory carrying cost, and low cash-to-cash cycle time (C2C).
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