Improving inventory performance with clustering based demand forecasts

Purpose The purpose of this paper is to develop a forecasting model for retailers based on customer segmentation, to improve performance of inventory. Design/methodology/approach The research makes an attempt to capture the knowledge of segmenting the customers based on various attributes as an input to the demand forecasting in a retail store. The paper suggests a data mining model which has been used for forecasting of demand. The proposed model has been applied for forecasting demands of eight SKUs for grocery items in a supermarket. Based on the proposed forecasting model, the inventory performance has been studied with simulation. Findings The proposed forecasting model with the inventory replenishment system results in the reduction of inventory level and increase in customer service level. Hence, the proposed model in the paper results in improved performance of inventory. Practical implications Retailers can make use of the proposed model for demand forecasting of various items to improve the inventory performance and profitability of operations. Originality/value With the advent of data mining systems which have given rise to the use of business intelligence in various domains, the current paper addresses one of the most pressing issues in retail management, as demand forecasting with minimum error is the key to success in inventory and supply chain management. The proposed forecasting model with the inventory replenishment system results in the reduction of inventory level and increase in customer service level. The proposed model outperforms other widely used existing models.