Forecasting errors can cause serious problems for an inventory-based business. If you fail to correctly predict high demand for inventory, you will miss sales. On the other hand, if you fail to accurately predict a decline in demand, you may find it difficult to move out unwanted merchandise, which can mean that you end up taking a loss.
By managing your inventory and demand forecasting as effectively as possible, you can better keep up with your customers’ needs and appreciate a higher overall level of customer satisfaction. Look out for these key errors in inventory forecasting and how you can avoid them.
Lead time helps determine how long it will take for items to make it to you once you’ve placed an order. If you accurately predict lead time, items will show up precisely when you need them. On the other hand, if you assume that items will make it to you sooner than your suppliers can create them or they can move through the supply chain, you may find it much more difficult to keep up with customer demand.
Using the right supply chain management software can make it much easier to predict overall lead time. The right supply chain management solution will help keep up with supplier performance over time, which can help you make decisions about what you need, when you need to place an order, and more.
Supply chain delays have made their mark on the past several years. Weather delays, driver shortages, and other challenges have made it difficult for many businesses to keep inventory on the shelves or to keep up with consumer demand. Many businesses fail to consider even known delays, like the Chinese New Year or the known shipping challenges over the holidays.
If you fail to factor those potential delays into your planning, you may find that it’s much more difficult to keep up with the inventory you need—and much more difficult to manage delays and challenges when they do occur. You may need solutions like secondary suppliers or even simple supplier diversity to help protect your supply chain.
Demand for key items can vary from one season to the next. Unfortunately, many businesses fail to accurately predict those natural changes. If you sell seasonal items, from swimsuits to holiday decor, you might already take seasonal variance into account.
Other businesses, however, might fail to predict how those changes will impact their business. For example, you might not prepare ahead for an increase in purchases around the holidays or pay attention to how weather changes from year to year have the potential to impact demand. Sales of some items may vary from one season to the next. In fact, it may surprise you when sales of specific items are most likely to go up!
Your demand forecasting software can help keep up with seasonal variance, including the changes in consumer needs based on a variety of factors, including economic changes. By factoring in those economic challenges, you can often do a better job of predicting actual demand across your business.
Keeping safety stock on hand can help ensure that you can lay your hands on the items customers need when they need them, even if that demand only comes up a couple of times a year. To maintain effective demand forecasting, however, you must keep up with those safety stock needs.
Some businesses may not pay attention to when those items start moving out of their warehouses, including when overstock of key items starts to dwindle. As a result, they may have a harder time predicting upcoming trends, which can increase the risk of stockouts.
Your sales department has a clear view of how consumer demand is shifting within your business. In many cases, salespeople will realize what shifts are taking place before anyone else. They speak directly to customers, which means that they may have a better idea of what shifts consumers have made and when those shifts occurred.
Loop in your sales team as you work to predict demand. Consider things like:
By bringing the sales team into the conversation, you can often increase the accuracy of your forecasting efforts.
The goal of your marketing promotions is often to increase sales. Frequently, those promotions will focus on increasing sales of a certain item.
Take a fast-food restaurant, for example. If that fast food restaurant starts advertising a specific seasonal option heavily, the goal is not just to bring customers into the restaurant, it’s to encourage them to purchase that specific item. Chances are, people seeing those ads will want to purchase that specific type of food, because the ad triggered the desire in them.
If the restaurant does not have adequate inventory of those items, however, customers will quickly choose to go to their competitors instead–and they may not come back.
As you prepare your forecasting efforts, make sure you take your promotions into account. Holding a sale will increase sales of any items you’ve reduced the price of, and deeper markdowns may bring more overall inventory movement. Likewise, if you’re promoting an item heavily, you may need to plan to have more of that item on hand.
Demand and inventory forecasting is a critical, ongoing part of every inventory-based business. Not only do you need to keep up with the current demands of your customers, but you also need to prepare for the future. At StockIQ, we offer a host of inventory forecasting and data analytics tools that can help keep your supply chain moving more smoothly and allow you to satisfy customer demand. Contact us today for more information about our solutions.