Demand Forecasting in the luxury and jewelry sector: application in an Italian leading company

Demand forecasting and planning has always been a very important issue for the efficiency of the entire supply chain. Sales forecasts are essential to formulate the sales budget, to plan production, to estimate the necessary production capacity and to plan promotions. Demand Planning therefore represents one of the most important strategic actions for the optimization of stocks, for an improvement in the level of customer service and for an overall reduction of costs. However, it is not possible to identify a single demand forecasting algorithm that can be applied to all types of companies and markets. The paper explores the problem, with the aim of identifying the forecasting process best suited to the business context under analysis and the most significant measurement metrics of forecasting accuracy. To achieve this objective, three fundamental and closely related issues are analyzed, consisting in the role of sales forecasts in production planning, the variety of forecasting techniques and aspects of performance measurement. This thesis has been developed during my internship experience in a famous Italian jewelry company in Demand and Inventory Planning Team. During this experience, I had the opportunity to give my remarkable contribution to the improvement of a new demand forecasting process, in line with the company growth. In the first introductory chapter, after defining the objectives of the thesis, is presented the company context, the various phases of the Sales Forecasting & Demand Planning process, the different calculation algorithms and the main KPIs used for performance monitoring. The second chapter presents the company, anonymously for privacy issue, and the reference market, in order to investigate the main critical issues of the application context. The forecast of sales consists in the forecast of the expected future demand for a product on a market, while the plans outline the set of specific managerial actions to be implemented to meet the expected demand. These are two different but closely related activities. The role of Demand Planning and Sales Forecasting and its application in the world of luxury and jewelry is described in chapter 4. The existing literature has focused on the analysis of demand forecasting algorithms and accuracy measurement metrics, useful for assessing the adequacy of forecasting methods but also as a prerequisite for improving all planning processes of production activities. The theoretical basis and applied literature in the business context are detailed in chapter 5. Starting from the chapter 6, the forecast algorithms used in the business context are described and subsequently evaluated using the metrics already described in the previous chapters. The company AS-IS situation is then presented and evaluated with reference to the data, appropriately chosen and explained, belonging to the year 2021. The discussion of chapter 6 continues with the description of the main changes adopted in the company for the construction of the forecast algorithm and for the organization of the planning process. The results obtained starting from Q1 of 2022 and the results expected in the future will conclude the project, highlighting the differences compared to the AS-IS situation and outlining the possible implementations of an increasingly automated and AI-based algorithm, to achieve greater efficiency in management of production planning, warehouse maintenance and final customer service.