Anticipating future demand is a tough job, wrought with ways you might go wrong. Proper demand forecasting and inventory control can save a company from buying too much or too little of something, which of course avoids expensive overstock scenarios or stockouts.
What is demand forecasting?
Demand forecasting predicts what customers will buy, how much they will buy, and when they will buy it. There are different ways to come up with the demand forecast, and quantitative methods such as analysing past sales data usually have more accurate predictive results.
Having a strong sense of demand allows companies to make better strategic decisions about how to manage and grow their operations. Accuracy and the ability to capitalise on forecasts will depend on the success of a company’s inventory control practices and ability to understand itself and its market.
Forecasting for success
Correct demand forecasting and appropriate stock control can save time, prevent unneeded inventory costs mounting, and thereby increase profit margins. But there’s no crystal ball involved, only a set of best practices that can help your business make the most of its customer demand, present and future.
Adopt a repeatable monthly process
Increasing inventory demand forecasting accuracy requires a consistent process where your company comprehensively analyses previous forecasts and compares them to actual year-on-year sales results. Knowing where previous predictions have gone wrong or come true will help you define the parameters of your next forecast.
Work out what to measure, and measure it often
You might consider the range of information you can use to generate a forecast, for example, competitors’ sales data, point-of-sale data, amount of obsolete stock in stores, frequency of stockouts, shipment details, and order details.
Integrate sales channels’ data
If your company operates multiple sales channels, you should aggregate data from each channel to develop a full picture of demand for a particular product. This will help to identify which sales channels are providing the best return on investment, and which others are less efficient.
Ensure reliance on real-time, up-to-date, relevant data
The only way to accurately predict future inventory demand is to use accurate, timely data. Inventory control practices that ensure accurate record-keeping and easy stock management are essential tools for ensuring the right numbers are being crunched as part of your prediction of future demand.
Inventory forecasting best practice requires a company to look at itself and its market honestly and objectively, with a hint of hope for its future sales but tempered by a smattering of reality grounded in real numbers, facts and figures. With sound inventory control practices and accurate demand forecasts, your company will be set to tackle the market.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.