There are different methods and approaches to these formulas. What Are the Types of Inventory Forecasting?Įven though gut feelings and experience can play a role to some degree, the most efficient forecasting relies on data and formulas. Sophisticated demand forecasting usually occurs with the aid of inventory management software. Is demand growing? Do you see a spike in demand in a specific season? Other factors are then added, such as planned marketing campaigns and other events that may affect sales. Next, you start to add complexities, such as seasonality and trend forecasting. Inventory forecasting starts with the simple step of looking at how much product your company has sold over time and making sure you have enough to continue meeting customer demand. Forecasters are creating more complex tools like advanced computer-based simulations and futures markets to create demand forecasts. It’s the application of information and logic to make sure you have enough product on hand to meet customer demand without overdoing it and ordering too much that you then must pay to warehouse. Inventory forecasting uses data to drive decision making. Sophisticated inventory management software can help you automate inventory forecasting, as well as other tasks, such as setting reorder points.Some of them are external, such as a storm affecting shipping times, and some are internal - such as a marketing campaign that drives up demand. Many factors can affect demand for your product. Various formulas can help you get started by identifying how long it takes for products or component parts to arrive to you after you order, at what point you should reorder stock, and how much stock you should have on hand to meet peaks in demand.Forecasting demand helps you keep enough product on hand while not wasting valuable storage space on unnecessary products.Replenishment is the stock required to meet inventory forecasts based on inventory goals, supply and demand. Factors include replenishment data such as timing, availability and delivery speed - also known as lead time. With inventory forecasting, you calculate the amount of the different types of inventory necessary for future periods. Reorder points are one important piece, but there is much more to inventory forecasting. Forecasting is more than just setting a reorder point - it’s using data analysis to identify patterns and trends to adapt to dynamic conditions and meet customer demand. Accurate forecasting ensures businesses have enough product to fulfill customer orders while not tying up cash in unnecessary inventory. Inventory forecasting - also known as demand planning - is the practice of using past data, trends and known upcoming events to predict needed inventory levels for a future period. On a strategic level, forecasters need insights into organizational goals, local and global supply chain challenges, planned marketing pushes and campaigns, potential media influences and the competitive landscape. Essential data elements required for accurate inventory forecasting include the following: Some factors could have a significant impact on revenue, while some have only a mild effect. Market forces can change quickly, and something as seemingly insignificant as a product placement by a Tik-Tok influencer could clear out your stock in seconds.įactors can be major or peripheral. Getting forecasts right requires a mix of data analysis, experience in the industry and customer insights to metaphorically peer into the crystal ball and predict future demand. East, Nordics and Other Regions (opens in new tab)Īn accurate inventory forecast is invaluable, especially in times when supply chains and consumer demand are changing rapidly.
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