The consultants have confirmed that product forecasting with such a large catalog is complicated.
They considered implementing a multi-tier approach where high-profit products would be modeled individually, and the current system would be kept for everything else. Management rejected that for the first round of development and choose to instead implement a consistent two-stage approach for all products. This approach is based on first developing a model to forecast aggregate sales for each market segment.
The proposed design uses a classical time-series approach for the aggregate forecast. The aggregate forecasts of daily sales dollars are allocated to individual products, and based on their historical contribution to total segment sales. Sales for each product are converted from dollar values to units based on recent average prices. The individual product forecasts are compared against current inventory to estimate when the next out of stock event is likely to occur for each product.