When you run a small business, it can feel like you’re back in your college economics class, quickly faced with learning the basics of accounting, supply, demand, and yes, even inventory forecasting! It can be a lot to take in within a short period of time.
Although inventory forecasting can be a complex practice for businesses, it’s extremely important for brands to be able to accurately plan for future sales in the coming weeks, months, and years.
Today, we’ll help you to learn a bit more about how to forecast inventory and what this process means for the continued success of your business.
What Is Inventory Forecasting?
Inventory forecasting is the practice of calculating the amount of inventory your company will need to have on hand in order to fulfill your customers’ orders in the future.
These calculations are often based on an array of factors, including the history of your sales, upcoming promotions that might drive demand, and planned changes in your company’s marketing strategies.
How Does It Work?
Inventory forecasting is typically handled by a brand’s marketing team and other specialized employees who track sales trends.
Companies will typically average out sales trends over time. This allows them to make an accurate estimate when it comes to future inventory demand. Accurately forecasting demand helps to ensure that you can avoid inventory shortages or product sell-outs, both of which can strain relationships with customers.
Inventory Forecasting Elements
As you could probably guess, the history of sales trends in your company is one of the most crucial elements involved in inventory forecasting. However, there are often other factors at play, too.
For example, your company’s forecasting period — the specific amount of time within which your sales data is being collected — will affect the type of data that you end up with.
Brands that tend to have a quick turnover of inventory should use a shorter forecast period in order to collect the most accurate sales data possible.
Your brand’s maximum stock level is another important element to consider. The rate at which you sell through your stock will be significantly impacted by the maximum number of SKUs you can keep in your storage facilities at once.
An accurate reorder point — the point at which your company automatically refills stock in order to avoid selling out — will also affect the data collected during inventory forecasting.
Types of Inventory Forecasting
Businesses will have different inventory management needs based on the types of products or services they offer and the size of their supply chain.
Here, we’ll explore the different types of inventory forecasting methods that companies can use:
1. Graph Forecasting
Using a graph to forecast future inventory needs can help you to notice trends. This method is best for visual learners who might miss crucial data points lost within a wall of text or on a vast spreadsheet of numbers.
2. Trend Forecasting
Trend forecasting looks closely at general data collected during past transactions, but it usually excludes abnormalities like seasonal sales bumps or larger market-related dips.
This information shows the behavior of former customers, letting marketing teams predict the behavior of returning clients and future customers.
3. Quantitative Forecasting
This method specifically uses numerical data to forecast trends in inventory needs. Many companies find quantitative forecasting to be more accurate than qualitative methods, which we’ll cover below.
4. Qualitative Forecasting
Qualitative forecasting relies on the collection of customer-related opinions and information. Companies can use methods such as market-targeted research and focus groups to get this data.
A qualitative method is more descriptive than numerical. It helps brands to connect directly with the behaviors and preferences of their customer base.
What You Need to Know to Forecast Inventory
Before you can choose an inventory forecasting method, it’s important to evaluate the kinds of data you have at your disposal.
Are you more likely to gain useful information by watching sales trends or by speaking directly to customers? Does your marketing team respond better to visual representations of data or textual representations?
This insight will help to set your company up for success when it comes to inventory forecasting.
Three Best Strategies to Forecast Inventory
Ready to get started on your inventory forecast? Here are three strategies to keep in mind along the way:
1. Track Inventory Consistently
Inventory tracking can’t just be done every once in a while if you want to maintain accuracy. Keep a close eye on your rates of inventory turnover during regular sales periods, but also watch for trends when you offer special deals and during peak seasonal shopping times.
2. Keep Your Key Departments Involved
Inventory management involves a greater number of players than you might think. Make sure all of the necessary departments within your company play an active role in speaking into and tracking inventory trends.
3. Utilize Software for Inventory Management
Companies no longer have to track their inventory manually. A high-quality inventory management software system can make a huge difference in the accuracy of your tracking, especially if your inventory is extensive or spread over multiple facilities.
Tools and Methods for Inventory Forecasting
If you’re still unsure about how to forecast inventory for your business, here are some hands-on tools you can employ.
Quantitative and Qualitative Data Tools
Quantitative and qualitative data can come together powerfully. Use software to collect data about your company’s sales trends as you connect with customers and ask for regular feedback and input from your clients and teams.
A Third-Party Logistics Company
A third-party logistics (3PL) company can work wonders when you want to simplify and streamline your supply chain. They can help you keep your inventory at proper capacity while collecting and tracking important sales and inventory data.
This is especially important for brands that are rapidly expanding. A 3PL can oversee every aspect of your growing supply chain with complete accuracy.
Confidently Keep Track of Your Inventory with a 3PL
Third-party logistics (3PL) companies aren’t just designed to create and maintain efficiency in your company’s supply chain; they are also always up-to-date with the latest inventory tracking software models in the industry.
Ready to learn more about what a 3PL could do to help your business? Take the first step by contacting Print Bind Ship today for a free quote.