Sales of new designs, is so difficult to forecast, desire to exploit sales opportunities and large batch runs turn into excess holdings of unsold items. In many items this situation leading to low inventory turns and increases in holding cost due to excess inventory. In those circumstances how we can improve our financial performance?
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An integrated cost approach that includes production and inventory costs (in addition to other costs) should be taken in to account for optimal production quantity that corresponds to the maximum expected profit based on a probabilistic forecast of demand. Exposing the financial risk of over production and providing better transparency of cost relationships between functions should be done for all items.
The financial risk associated with sales forecasting can be mitigated if an integrated cost model is applied and the business focuses on total cost and profitability rather than on minimizing unit production cost.