Q. What is the best method to forecast in the toy industry ? Or any industry where 70% + of the portfolio is renewed every year across thousand of SKUs ? Aggregation is understood, problems starts when entering SKU territory .
A. There is no special model for the toy industry. There are three types of models: (1) Time Series, (2) Cause-and effect, and (3) Judgmental models. They apply to all industries. We use the model that best captures the data pattern. SKUs are always most difficult to forecast. Usually, we first make a forecast of the category, and then allocate the share of each SKU using the ratio of each SKU to the total based on the rolling average of the last 12 months or so. That is, what the ratio of SKU 1 is of the total category, what the ratio of SKU 2 is of the total category, and so on. By using these ratios, we can make a forecast of each SKU.
I hope this helps.
Dr. Chaman L. Jain
Journal of Business Forecasting