What is the best way to forecast inventory?

Dec 18

When the supply chain and consumer demand are changing rapidly, it is essential to forecast inventory accurately. The ability to accurately forecast needs a blend of statistical and mathematical analysis, experience with the business, customer insights, and some speculation to predict factors that could cause future demand to dip or spike.

What is inventory forecasting?

Inventories are forecasted based on how much product is anticipated to be sold in a particular period, determining how much stock is needed to fulfill future customer orders. To make these estimates as accurate as possible, historical sales data, planned promotions, and external factors are considered.

Here are the top 4 benefits of accurate inventory forecasting

As you know the downsides and potential consequences of not having an inventory forecasting system in place, here are the upsides.

There is less inventory to keep on hand.

Inventory can be kept in bulk in warehouses and collect dust for years, but that's not usually an effective way to do business. The data-driven predictions you make on how much inventory you will need will alleviate the need to purchase merchandise that you won't require. By automating inventory accounting, you will improve cash flow and even free up funds for other areas of your business.

More sales from fewer out-of-stock items

You won't have to worry about stockouts or backorders if you have enough inventory on hand. You can fulfill each order as soon as it is placed and provide each customer with the expected delivery. Inventory forecasting requires constant communication with marketing (even at the channel level).

Customers experience a positive shopping experience when they can find what they're looking for online without being intimidated by an "out-of-stock" message to leave your store. You risk losing your future business with each customer you lose by not supplying them with what they require when they need it.

Less manual labor

Labor and warehouse costs may be reduced if you use accurate inventory forecasting since you're better prepared to handle changes in demand and can minimize some manual labor. By automating reordering, predicting labor needs, and accounting for order volume changes, inventory forecasting tools make it easier to predict what has to be ordered, which reduces inventories. For warehouse management and all employees, this saves time and workforce.

A more efficient production process

From ordering through delivery, inventory forecasting can improve the management of your products. Understanding your manufacturer's lead times, your warehouse's timeline for receiving incoming shipments, and the stock levels of the items you want to order will help you work effectively with your supplier. Knowing these details will help you better understand the production cycle.

Best practices for inventory forecasting

Inventory forecasting is enhanced by good inventory management. This article presents some strategies for getting your inventory forecasting process in order.

Involve other teams

Forecasting inventory can't be done in isolation. In addition to operations, finance, marketing, product development, and more, every stakeholder must be involved. Each group provides unique insights and input to produce the most accurate forecast.

Notes should be taken and reviewed for future planning.

It's not always enough to track order volume; in some cases, annotations help add context or forget the reason that prompted a demand change. Prepare for flash sales, holidays (including those affecting your manufacturer, such as Chinese New Year), and other events that you may experience a change in sales or production cycle. During the planning process, you can refer back to the notes you have taken in previous years.

You wouldn't necessarily incorporate a similar spike into your forecast if demand forecasting was inaccurate because of something unpredictable.

Make the most of your data.

Knowing how your inventory has changed historically can help you determine when to reorder goods. To be proactive, you should use sales and inventory data from the past to guide future decisions. By repeating this process, you can create a consistent forecast period and simplify inventory forecasting.

View real-time stock levels

Data that is accurate and timely can help you predict future demand; inventory tracking in real-time lets you keep an eye on your stock levels at any given moment and lets you check if your estimates were accurate or off by a great deal. To determine why your estimates were inaccurate, determine what caused it. When you learn from the past and adjust your forecast as you go, you will adapt your forecast in the future.

Choosing the right inventory management software

Keeping your inventory replenished at the right time and in the correct quantity can seem like sifting through a complex puzzle every time it changes. Centralizing data across all of your sales channels is the first step. Your software should provide you with the appropriate features for the size, complexity, and product catalog of your business. Your inventory forecasting tool may be standalone, depending on your specific needs.

Conclusion

Forecasting inventory is impossible without a crystal ball. Even with the best tools to estimate demand, an estimate is still only at the end of the day. Suppose you continuously monitor inventory turnover and stock counts, and other trends in orders from customers. In that case, you'll be better able to make accurate long-term and short-term plans.

Find out what Inventooly can do for inventory management and demand forecasting if you're looking for a 3PL (Third-party logistics company). As a result of the Inventooly customer base, our integration of technology, fulfillment services, and e-commerce warehouses, we can connect all the places you sell online with your inventory in our warehouses to provide seamless e-commerce fulfillment.