Purchase Forecasting Explained

Key Takeaway: Sales forecasting predicts demand. Purchase forecasting turns that prediction into an actual number to put on a purchase order. The two aren't quite the same calculation.

What's on This Page

From Demand Forecast to Purchase Quantity
Why the Adjustment Matters
Building In a Buffer
Checklist
Common Mistakes
FAQ

From Demand Forecast to Purchase Quantity

Purchase Quantity = Forecasted Demand + Target Ending Stock − Current Stock − Stock Already on Order

Example

Forecasted demand for the period: 600 units. Target ending stock: 100 units. Current stock: 150 units. Already on order: 50 units.

Purchase Quantity = 600 + 100 − 150 − 50 = 500 units

Why the Adjustment Matters

Forecasting demand alone and ordering that exact number ignores what's already sitting in stock or already on its way. A common cause of accidental overstocking. See Purchase Cost Control for the related discipline of checking open orders first.

Building In a Buffer

The "target ending stock" figure should reflect your calculated safety stock, not a round number picked by feel.

For further reading, see the Association for Supply Chain Management (ASCM).

Checklist

Start with the demand forecast for the period
Add the target ending stock level, including safety stock
Subtract current stock on hand
Subtract stock already on order
Confirm the resulting purchase quantity against supplier lead time
Adjust the forecast after comparing to actual results

Common Mistakes

Forecasting demand alone and ordering that exact number. This ignores stock already in hand or on order, leading directly to accidental overstocking.

Using a rough guess instead of calculated safety stock in the target. This either leaves too little buffer or ties up unnecessary capital in excess stock.

Not updating the forecast regularly. A stale forecast drifts further from actual demand the longer it goes unchecked.

Forecasting too far ahead of actual purchasing decisions. This adds unnecessary uncertainty without a corresponding decision that needs to be made yet.

FAQ

How does purchase forecasting account for stock already on hand?

The formula subtracts current stock and anything already on order from the forecasted demand, so the purchase quantity reflects only what's actually needed.

Should the forecast include a safety buffer?

Yes. The target ending stock figure in the formula should reflect calculated safety stock, not a rough guess.

How often should purchase forecasts be updated?

At least monthly, or more often for fast-moving or highly seasonal products.

What's the risk of forecasting too far into the future?

Longer horizons carry more uncertainty, which can lead to overstocking if the far-future forecast turns out to be wrong.

Calculate This For Your Business

Related Guides in the Purchasing Academy

Purchase Planning Explained. the broader planning process this formula feeds
Safety Stock Guide. calculating the buffer used here
Purchase Orders Explained. another guide in the Purchasing Academy

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