How Inventory Forecasting Methods Help Predict Future Demand


For any business that sells goods, inventory forecasting is a critical tool in your inventory management arsenal. However, it’s not only important for helping you manage stock levels, it’s also key for planning your warehouse layout since you’ll want to make it easy to access high-volume products.


Put simply, demand ebbs and flows. You need to prepare, as much as possible, for such events by using demand forecasting to manage inventory levels. When you develop successful inventory forecasting methods, you fulfill every order with ease, increase customer satisfaction ratings and become the trusted supplier that your buyers come to appreciate.


What is inventory forecasting?


Inventory forecasting is defined as the process of predicting inventory for a future time period. Your forecasts are based on factors like historical trends, seasonal rushes and your predicted sales velocity. Typically done quarterly—or every three months—all of these factors roll up to what your demand forecasts are so that you can order inventory in time for the coming quarter.


With that said, here are three ways to forecast inventory for future demand.


How to Forecast Inventory


1. Use CRM software for wholesale distributors


Typically found as a feature within CRM software for wholesale distributors, recording the potential sales pipeline is central to accurately forecasting sales. Your sales reps should have conversations with their customers to find out what their needs are for the quarter ahead. Customers may have something planned, like a promotion, that could lead to a spike in demand. Or perhaps they plan to abandon a product line. Either way, such conversations can help sales reps better predict what their customers will buy and in turn, what you need to order to accommodate for future demand.


2. Consider seasonality of product lines


Naturally, holidays like Christmas, Hannakuh or Halloween, for example, can have a serious impact on spikes in demand for relative product lines. If you carry seasonal products, be sure to only have those on hand prior to the holiday or traditional seasonal spike. Your demand forecasts, which should consider seasonal products, will help you to order just the right amount so that you’re not left with too much inventory after the holiday passes. Correspondingly, you’ll also have enough on hand so that you can fulfill every order during the seasonal rush.


3. Consider new product launches or promotions


Perhaps you have a sale for the same time period each year. If so, that will naturally deplete a sizeable amount of inventory if it's something that excites your buyers. To prepare for this and other promotions, look at historical sales data from the prior year to identify your best sellers and inventory counts. This will help you prepare for an expected spike in demand. In turn, you’ll have exactly what you need on hand to fulfill every order. When you are in the midst of a self-planned sale or promotion, the last thing you want is to be understocked.


Categories: Inventory Management

Tags: inventory software, inventory, inventory management

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