How to Use Demand Forecasting to Improve Inventory Planning


Demand forecasting is imperative for effective supply management, whether you’re a manufacturer, distributor, or retailer. If you can accurately forecast demand, you can ensure you have enough stock to deliver high fulfillment rates or service levels. If your demand forecasting is accurate, you’ll reduce the likelihood of stockouts, manufacturing delays, and missed sales.

You can quickly meet demand or customer orders with accurate inventory forecasting without spending much money on excess stock. By doing this, you can lower your running costs. Good demand forecasting software enables you to hold the right amount of inventory without overstocking or understocking, which results in the best inventory control.

Impact of Demand Forecasting on Inventory

Predictive analytics integrated with demand forecasting tools allows you to comprehend and anticipate demand, manage your inventory and ensure you’re always carrying the correct quantity of stock.

In other words, by being aware of how demand changes, you may avoid problems like stockouts and overstocking, which can be costly for your company.

Accurate demand forecasting is essential for making critical business choices about annual turnover, profit margins, and cash flow. You run the danger of making bad choices about your products and markets if you cannot foresee demand. Your total profitability may suffer as a result, and your inventory holding expenses and customer satisfaction levels may go down.

How Can Demand Forecasting Help?

1. Improve and Maintain Accurate Stock

Utilizing demand forecasting tools enables you to optimize your stock control and inventory management more.

Due to maintaining the proper level of stock at all times, your inventory turnover rates will likely rise, and any related carrying costs will fall.

2. Boost Financial Management Skills

With proper forecasting, you are better equipped to plan your budget so that you can pay your suppliers and cover any other operational expenses since sales predictions can give you insight into future cash flow.

Additionally, you may be more creative with your marketing expenditure the more correctly you can predict demand. For instance, switching between paid and organic promotion to coincide with sluggish and busy sales periods can help to boost sales even more.

To put it another way, demand forecasting tools enable you to invest in the company’s expansion.

3. Acquire a Competitive Advantage

Utilizing demand forecasting software guarantees that you never run out of stock. As a result, you lessen the chance that a potential consumer will buy a comparable product from a rival.

Additionally, employing forecasting methods for upcoming selling seasons enables you to adjust and improve your marketing approaches to meet anticipated demand.

4. Less Poor Business Choices

You are less likely to make bad decisions regarding your products, markets, and customers because of the plethora of data insights that can be derived from effective forecasting.

It can be detrimental if you decide not to use demand forecasting techniques. Your supply chain management, customer satisfaction scores, inventory holding costs, and overall profitability are probably in danger.

5. Increase the Effectiveness of the Supply Chain

To ensure efficiency between your manufacturers, your suppliers, and your business, you must be aware of product demand and be able to estimate it correctly.

You can more effectively plan production, warehousing, and shipping with the help of demand forecasting software. This provides information about when to arrange any essential maintenance shutdowns throughout the year, away from times when sales are at their highest.

6. Ensure a Constant Flow of Cash

You may better manage your cash flow by being aware of the peaks and troughs in product demand. As you are probably aware, inadequate cash flow management can result in an inability to pay your suppliers and manufacturers, which could put you at risk of having your connections cut off.

Instead, being aware of demand will enable you to negotiate advance credit conditions, reserve funds, and short-term loans.

7. Calculate the Necessary Headcount Based on the Demand

When you need to add picking and packing teams (for example, by recruiting seasonal temps) and other personnel to make sure that your operations work smoothly during peak selling times, accurate demand forecasting can help.

In other words, since staffing is a significant cost driver, demand forecasting tools may help you create accurate schedules and lower the risk of under or overstaffing.

8. Periods and Evaluations of Forecasting

The time frame you select for your demand forecasting will directly affect how accurate your forecast will be. For instance, a prediction that considers the demand for your goods over the next two weeks is significantly more likely to be correct than one that considers demand over the next year.

Additionally, you’ll need to reassess your forecasts more frequently than in slow markets or for slow-moving products if markets are volatile or an item’s demand pattern is irregular. You might need to change your forecasting intervals if stock shortages or instances of surplus stock start to occur.

Utilize Demand Forecasting Tools

Forecasting demand accurately is difficult, especially if you have a sizable portfolio and want to keep track of each item. A precise image of your warehouse’s stock levels and your upcoming orders or sales across each channel is necessary for inventory forecasting.

Demand forecasting software offers a quick and precise way to forecast no matter how complex or variable the demand is. A demand forecasting system will accommodate more advanced demand forecasting requirements than enterprise resource planning systems (ERP), warehouse management systems (WMS), and e-commerce platforms.

About the Company

Organizations can produce accurate forecasts by merging past sales data with other elements like seasonality, customer trends, and others using Kronoscope, a robust AI-powered demand planning tool from Fountain9. By optimally stocking their inventory while considering the upcoming demand, businesses can lessen the challenge of maintaining huge inventories. The program can determine how much inventory has to be kept on hand to meet demand appropriately, correctly estimating demand for each SKU item.

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