## Wednesday, December 26, 2018

### Demand Planning: Sample Calculation for Item Demand/Supply using Linear Regression

Demand Planning feature must be turned on under Setup>Company>Enable Features>Items & Inventory>Demand Planning.

Linear Regression formula uses the equation "y=a+bX".

This equation will be used when projecting future Item Demand/Supply in NetSuite.

Given:

(Cash Sale Transactions Imported)

Date..........Number...............Item.........Quantity......Amount

1/15/2012....CS-001..............Item A..........10..........100.00

2/1/2012......CS-002..............Item A..........15..........150.00

3/1/2012......CS-003.............Item A..........20...........200.00

3/15/2012....CS-004..............Item A..........25..........250.00

4/20/2012....CS-005..............Item A..........10..........100.00

Navigate to Setup>Accounting>Inventory Management Preferences>Transactions to Consider=Actual Sales.

Plot the data above in a table for easier computation. The table will depend on what you set as your Historical Analysis Duration and the current date when you go to Transactions>Demand Planning>Calculate Item Demand Plans. In this example, it is set to a period of 6 months and the demand is being calculated as of May 2012.

From May 2012, I will count 6 periods back. The first period in the computation will be November 2011.

We then let X=Period and let Y=Quantity.

Take the sum of the Quantities sold per month. In March, there were two transactions so we get a total of 45 Quantity sold.

Since during November and December 2011, no quantities have been sold, Y (Quantity) should be set as zero (0).

 Period Quantity Month X Y XY X2 Y2 November 1 0 0 1 0 December 2 0 0 4 0 January 3 10 30 9 100 February 4 15 60 16 225 March 5 45 225 25 2025 April 6 10 60 36 100 Total 21 80 375 91 2450

XY= X*Y

Once you have plotted the data in a table, get the values for XY, X2, Y2 as this will be used in our formula below:

(∑Y)(∑X2 ) – (∑X)(∑XY)                 (80)(91) – (21)(375)                -595

a = --------------------------------  = ---------------------------- = --------------- = -5.66667

n(∑X2 ) - (∑X) 2                              6(91) – (21)2                           105

n (∑XY) – (∑X)(∑Y)                          6(375) – (21)(80)               570

b = -------------------------------- = ----------------------------- = --------------- = 5.428571

n(∑X2 ) - (∑X) 2                                6(91) – (21)2                                     105

To project demand for three periods, NetSuite calculates it using the equation, y=a+bX.

 Projected Values computed by the system: Month Period (X) Quantity (Y) Rounded value May 7 32.33 32 June 8 37.76 38 July 9 43.19 43 August 10 48.62 49 September 11 54.05 54

Example: y=-5.66667+(5.428571)(7)=32.33

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