The only thing worse than having a lot of excess inventory laying around your warehouse and collecting dust is not having an item in stock when someone wants to purchase it.
Wouldn’t it be great if you always had just the right amount of inventory on hand? A Goldilocks scenario: not too much, not too little.
If you forecast correctly, it’s possible!
Demand forecasting refers to the prediction of demand for a product or a service on the basis of past events and prevailing trends. Studies show that the proper amount of inventory on hand can increase sales by 40% and lower use of operating capital by 60.3%.
How often do you run out of inventory before you receive your next shipment? Then you have to pay your manufacturers, suppliers, transporters, etc. a premium for faster delivery? Or do you have an overabundance of products that don’t sell well taking up valuable warehouse space?
Forecasting inventory provides many benefits, including opportunities to:
- Increase customer satisfaction — Ever try to make a purchase only to discover the product is out of stock? Keep your customers satisfied by providing them with the product they want when they want it.
- Maximize profits — You can’t make money if you haven’t stocked the products people want to buy!
- Decrease costs — The less time inventory is sitting in the warehouse, the less money you’re spending as you wait for it to be sold. This is especially true if you use Fulfillment by Amazon (FBA). Additionally, carrying excessive inventory ties up a lot of cash.
Not surprisingly, in examining 20 years of data from large retailers, researchers discovered that companies with low inventory and high turnover outperformed those with high inventory and low turnover.
How To Forecast
Demand forecasting involves both informal methods (such as educated guesses) and quantitative methods (like using historical sales data, statistical techniques or current data from test markets). As you forecast, there are three important things to consider:
- Lead time — How long it takes to receive inventory from the time you place the order.
- Reorder point — To calculate this, you need to know your forecasted daily unit sales.
- Reorder amount — How much inventory you need.
The good news is that ChannelAdvisor’s Demand Forecaster can do the calculations for you!
ChannelAdvisor’s Demand Forecaster Tool
To help our sellers predict their necessary inventory levels, we recently launched Demand Forecaster, a data-driven forecasting tool.
This platform feature applies machine learning to identify 50 top-selling items and predict expected 30-, 60- and 90-day stock demand, along with an estimate of remaining days of stock. ChannelAdvisor’s Demand Forecaster is based on historical sales, seasonality and fast-moving e-commerce trends across many channels.
For more info, view our on-demand webinar entitled “Introducing Demand Forecaster: Peak Season Inventory Planning, Made Easy” here.
And if you’d like access to this tool, please contact your ChannelAdvisor Account Manager or request a demo to see it in action.