Seasonal spikes and boosts in customer demand are great – if you’ve got enough stock available to meet them. But if you don’t, missed sales and disgruntled customers can seriously hurt your business.
Anticipation inventory is the solution to this problem. Read on to learn what it is, how it works, and the pros and cons of this inventory strategy.
What is anticipation inventory?
Anticipation inventory can be described as the inventory which is purchased in anticipation of expected increases in demand. For example, easter eggs purchased ahead of Easter, or pumpkins purchased ahead of Halloween.
For the customers, this means that the products they want are more likely to be in stock when they need them, improving their satisfaction.
In some cases, anticipation inventory may be purchased ahead of expected cost spikes. A business may purchase additional quantities of stock to lock it in at the current (lower) price.
Anticipation inventory is also sometimes referred to as seasonal stock, speculative inventory, build-up inventory, or speculation inventory.
The difference between anticipation inventory and safety stock
Anticipation inventory and safety stock are both techniques used in supply chain management to ensure that a business has the necessary inventory on hand to meet customer demand.
Here’s the difference:
- Anticipation inventory is purchased to meet a predicted spike in demand or price.
- Safety stock is a buffer of inventory purchased to protect against unexpected shipping delays or sudden increases in customer demand.
While certain disruptive issues can be hard to predict – the trajectory of a cyclone or the surge of interest in a celebrity-endorsed product – people’s desires for certain products at certain times is remarkably consistent.
We might all complain about Valentines, but probably still buy a Hallmark card. Ditto for Easter; we may be on a diet but who can say no to a chocolate marshmallow bunny?
This predictable human behaviour is why you’ll want to stock up on anticipation inventory ahead of certain events. You will also need safety stock as an ongoing buffer for any unexpected demand spikes or supply chain disruptions.
Benefits of anticipation inventory
“A forecast of total-market demand won’t guarantee a successful strategy. But without it, decisions on investment, marketing support, and other resource allocations will be based on hidden, unconscious assumptions about industrywide requirements, and they’ll often be wrong.”
All product businesses should implement an anticipation inventory strategy if they sell seasonal goods or products with predictable demand increases.
Let’s go over a few of the core benefits of anticipation inventory.
The greatest benefit of a well-planned anticipation inventory strategy is satisfied customers. We’ve all been that last-minute shopper looking for the perfect kid’s Halloween costume, enough Easter eggs to fill the bunny’s basket, or some more fudge for surprise Christmas guests.
Businesses that can supply the right number of products at the right time end up with very happy customers, positive reviews, and repeat business.
A stockout is when customers are ordering a product that is no longer in stock at your warehouse.
In today’s world of instant feedback, advertising something that’s no longer available triggers negative customer experiences. Your customers will quickly become your competitors’ customers. And any sense of goodwill or loyalty will be lost.
Anticipation helps mitigate this problem by ensuring there is always sufficient stock available to meet increased demand.
Having stock in place for an expected surge in demand means you can plan a more effective sales campaign and prepare your warehouse appropriately. This means you’re more likely to have a successful season selling the anticipation inventory.
Knowing what products you need, when you need them, and the number of units required will allow you to grab bargains from a supplier, order in bulk, or negotiate pricing.
Anticipation inventory can also help you hedge against cost spikes. If you know that a supplier’s prices will be going up in a couple months, you can order in advance at the lower price – before the cost increases.
Anticipation inventory also enables you to better forecast for the years ahead. The better you get at purchasing and selling anticipation inventory, the better you’ll be in the year ahead, as you understand your business, your customer habits, and your most successful sales techniques.
Thinking about anticipation inventory in a more structured, strategic way will likely deliver several benefits to your business. As with many business decisions, the key is weighing up the pros and cons, understanding your industry, and staying across customer trends and shifts.
What are the disadvantages of anticipation inventory
“To help guarantee the accuracy of demand forecasts, you must have as much historical demand data as you can get per item or item allocation key.”
Like any inventory strategy, anticipation inventory is not without some risks. We’ve outlined a few of the disadvantages of an anticipation inventory strategy below.
Increased cost of storage
Anticipation inventory by its very nature will use up space in your warehouse well ahead of expected sales. If your forecasts are off, the inventory will sit there, taking up space that could be used by other products in higher demand.
Increased risk of excess or dated inventory
Anticipation inventory is a quantity of stock above the ordinary amount you carry on hand. While this means your risk of running out of stock is minimised, it also means that your risk of carrying too much stock is increased.
If your predictions were inaccurate, either by poor demand forecasting or external events affecting demand, you’ll wind up with too much stock.
If that stock is perishable, it may have to be written off. If it’s still saleable, you may end up with storage issues that impact how efficiently your business can operate.
Loss of flexibility
Another downside of anticipation inventory is the inevitable loss of flexibility.
Ordering anticipation inventory ahead of time – ideally, getting well-priced units as a result – needs to be balanced with the space it takes in the warehouse and the loss of flexibility you will face as a result.
Having hundreds of Christmas-themed products stacked in the corner of the warehouse ahead of December may be helpful in meeting demand. But that space can’t be used for goods in demand today.
Managing anticipation inventory can be a complex and time-consuming process, requiring accurate forecasting, efficient procurement, and effective inventory management.
How much anticipation inventory should your store have?
The level of anticipation inventory you hold will depend on several factors. When deciding what to order and when you will need to consider the following:
- Value. The cost of the goods will play a significant role in your purchasing decisions. If you’re ordering close to when there is an expected surge in demand for the products, they will likely be more expensive. If you can order further in advance, you will be more likely to find a better price.
- Demand forecasts. The accuracy of your forecasts will influence how much anticipation inventory you are comfortable ordering. If confidence in your forecasts is high, that will influence the number of products or materials you order in advance.
- Warehouse capacity. If your warehouse is too small for the amount of anticipation inventory you want to store, there may be other decisions to be made around warehousing expansions.
Thinking about anticipation inventory in a more structured, strategic way will deliver several benefits to your business. As with many business decisions, the key is weighing up the pros and cons, understanding your industry, and staying across customer trends and shifts.
Examples of anticipation inventory
Anticipation inventory comes into play with products that are subject to increased demand at certain, predictable times. It’s also useful for products that may face disrupted supply chains.
Below, we’ve outlined the various areas that benefit from anticipation inventory strategies.
Anticipation inventory is most commonly used for seasonal products. Holidays and special events, for example, are when demand for certain products will predictably spike.
For Christmas products like tinsel, decorative lights, and stockings will be in far higher demand than at other times of the year.
Rapidly evolving products
Products, particularly consumer electronics like smartphones, are evolving at speed, and there is value in placing orders ahead of product launches.
There is a strong market for the latest products, such as the most up-to-date iPhone or PlayStation console. Being ahead of that demand will be extremely valuable for your business.
Supply chain disruptions can cause global upheaval, as we have seen from the COVID pandemic. Weather events can also cause issues for supply chains, particularly if roads are suddenly blocked off or deemed unsafe to travel across.
Getting ahead of potential disruptions like this, as much as possible, will benefit your business. However, it can be difficult to forecast supply chain disruptions.
Products with a short shelf life, like fresh fruit or vegetables, can be ordered in advance as anticipation inventory. For example, your business could order avocados ahead of time, given the fruit’s popularity and short season.
Given products like this are perishable, you will likely want to work with another inventory strategy such as first-in-first-out (FIFO) or just-in-time (JIT) inventory to ensure products ordered in anticipation are then sold before they perish.
This can be quite a juggle and involves a fair amount of strategic thinking.
How to implement an anticipation inventory strategy
If your business sells products that could benefit from an anticipation inventory strategy, you’ll need to have a good understanding of customer demand throughout the year.
The best way to gain this understanding is through accurate demand forecasting.
While it’s not impossible to predict demand by intensely studying the past sales and product trends in your business, it can be costly and time-consuming.
By implementing effective demand planning software, such as Unleashed’s Advanced Inventory Manager, you can calculate critical information around your optimal inventory levels in seconds.
Inventory management software with forecasting features takes any historical data you have around a product to provide clear predictions of how many you’re likely to sell at various points throughout the year.
It’s important to also account for external factors, such as social or political climates that may affect a product’s demand in a given year.
Anticipation inventory: Key takeaways
- Anticipation inventory is stock ordered in anticipation of expected demand spikes.
- Anticipation inventory can also be stock ordered in anticipation of cost increases or known supply chain delays.
- Businesses that sell products subject to fluctuations in demand should have an anticipation strategy in place.
- While anticipation inventory protects against stockouts, it can also lead to overstocking and wastage.