Inventory Forecasting and its Benefits for Business

Many e-commerce or online business customers expect orders to be fulfilled efficiently and delivered on time. As a business owner, of course you don't want to experience overstocking, let alone stockouts. So we need a system and expertise in inventory forecasting that can affect margins, reputation, and the level of customer satisfaction with your business.

Definition of Inventory Forecasting

Inventory forecasting is the process of calculating the inventory needed to fill future customer orders based on the number of lots of products that are predicted to be sold over a certain period of time. This forecast takes data on past sales, planned promotions, and external forces to be as accurate as possible.

How Is Inventory Forecasting Used in Online Stores?

Online businesses can start small to gain a better understanding of their sales and supply chain, without the help of a third party or other partners. It all starts with tracking data automatically using inventory management software.

The process doesn't have to be a big lesson in statistics, but to practice bringing together multiple data sources to make guesses in a professional manner. Incorporating inventory forecasting into your current workflow can benefit your entire operation and help online businesses run more smoothly, prevent stockouts and improve cash flow.

Benefit from Accurate Inventory Forecasting

Here are some of the benefits of inventory forecasting for your business:

1. Fewer supplies needed

By having a data-driven prediction of how much inventory you'll need, you won't have to buy inventory you won't need for a certain period of time. This means you can improve inventory accounting, help with cash flow, and even free up funds for other areas of the business.

2. More sales

If you have sufficient inventory, you don't have to worry about out of stock or back orders, you can fulfill each order as soon as it is ordered and provide the promised delivery to the customer. Aligning with marketing on upcoming promotions is critical for inventory forecasting.

Plus, the customer experience remains positive when they find what they're looking for online and don't find "out of stock" information only to leave your store and shop elsewhere. Any lost customers by not getting the items they need in your store, could risk losing future business with them.

3. Less manual labor

Accurate inventory forecasting saves labor and warehousing costs as you are better equipped to handle changing demands and can reduce some manual work. Inventory forecasting tools help automate reordering, predict labor requirements, and account for changes in order volume, making it easier to understand what's coming and reducing inventory holding costs. This saves time and effort for warehouse management and all staff.

4. More efficient production cycle

Inventory forecasting helps you better manage your products across your supply chain. When you know the factory operational lead time, warehouse receiving schedule, and the correct stock level for each product needed to create a new purchase order, you can work more efficiently with suppliers and gain a better understanding of the production cycle. This way, you can make informed decisions and eliminate the need to expedite production and delivery schedules.

5. Help reduce wastage of inventory

Dead stock is inventory that can no longer be sold, usually from poor inventory forecasting. Knowing your best-selling inventory compared to slow-moving items can help you make better decisions about the product life cycle. It can even simplify your product line by discontinuing products that fail (work closely with sales and marketing teams to understand which products you want to vacate or run a quick sale).Metode Inventory Forecasting untuk Perencanaan Permintaan

 

There are several types of inventory forecasting that need attention to help demand planning. These methods can and should be mixed and matched to help predict potential outcomes, as each type of inventory forecasting has a different use case or focus.

1. Quantitative Forecasting

This inventory forecasting method uses historical sales data to anticipate future sales. The longer a business or product has been around, the better the data collection and analysis will be. You need at least one year of sales to see seasonal trends, but several years of data is even more meaningful because it helps identify consistency and true yearly patterns.

2. Qualitative Forecasting

This method uses less data from a trader's order history and instead relies on external factors such as market intelligence, environmental forces, economic demand, and other macro-level shifts (e.g., buying behavior shifts from pre to post pandemic or inflation). This method often uses expert judgment such as an analyst.

3. Trend Forecasting

This type of inventory forecasting involves closely monitoring sales trends in your product line over time to help pinpoint changes in the bigger picture — not just seasonality — but broader changes in consumer buying behavior. While you can't always predict the next product or category that will disrupt your business, being aware of and understanding ongoing trends can also help you stay ahead.

4. Graphical Forecasting

This method helps visualize data to identify patterns that might otherwise go unnoticed as plain text. It can be used on any of the above data sets to generate trendlines, find differences, quickly compare variables, and more.

Best Practices for Inventory Forecasting

Good inventory management is suitable for good inventory forecasting. Here are some basics that can help your business implement a proper inventory forecasting process:

1. Involve other teams

Each stakeholder or group has a unique perspective and input needed to make the most accurate estimates.

2. Write it down and review it for future planning

List upcoming flash sales, known holidays (including those impacting manufacturers such as Hari Raya Idul Fitri), and other events that could cause your sales or production cycle to slow down or increase.

3. Use Data

Your past sales and inventory data should guide future decisions and help you be proactive, not reactive. This way, your inventory forecasting process is repeatable and uses a consistent forecast period.

4. View real-time stock levels

Real-time inventory tracking allows you to monitor actual stock levels at any time and helps you keep an eye on whether your estimates are correct or dropping drastically.

5. Choose the right software

Make sure the software you use has all the functionality that makes sense for the size, product catalog, and complexity of your business.

6. Use the right inventory forecasting method

Some inventory forecasting methods will be more helpful to your business than others, depending on the types of products you sell.

7. Calculate inventory turnover

Identifying which products are more popular and which are slower to sell can help you plan your inventory more strategically, and lead you to invest in products that will help you achieve higher sales.

8. Implement business goals

Inventory forecasting can affect whether or not your business achieves its goals — so when forecasting your inventory, consider how your stock decisions can help you achieve those goals.

When discussing inventory forecasting, you still have to be careful with the available stock, even if you already use software. Through Supply Chain Management, company executives can share the latest supply chain management practices that exist today.

It is important to consider the interrelated role of technology in accelerating a more efficient and better supply chain and business ecosystem strategy. You can try omnichannel, cooperation, disintermediation or resource sharing strategies to get more accurate planning for the short and long term.