How To Do Inventory Forecasting
Whether you’re an online retailer or bricks-and-mortar shop owner, inventory forecasting can determine the financial success of your business. On the one hand, not having enough inventory means that you’re not making as much money as you should, and you risk having unhappy customers if you can’t fulfil their orders. In an unpredictable market environment where the ebb and flow of customer trends move faster than ever, this could be a fatal blow for any small business.
On the other hand, having too much stock means that you’ve tied your cash up to unsellable assets. Poor cash flow management could also be potentially fatal for businesses already on the tightrope. Overstocking limits a company’s financial flexibility and significantly increases storage costs. At the heart of all overstocking woes is one common malpractice – blind ordering.
Achieving optimum inventory control is far from easy. Like most things in life, ordering the right amount of stock is about striking the right balance. In a nutshell, inventory forecasting is the process of making an informed projection of future sales demand. The key word here is not “projection” but “informed”. As unbelievable as it might sound, there are still companies that base their inventory forecasting on hunches and guesses.
Suffice to say, basing your inventory forecasting on instinct is a recipe for disaster. But so is making decisions based on wrong or outdated data.
If you want to get inventory forecasting right, you need access to current sales numbers that give you a complete picture of your industry landscape. But what does that entail exactly?
Read on as we outline the most important inventory forecasting practices.
What are the best inventory forecasting practices?
These are some of the most important inventory forecasting practices that every successful business should follow:
1. Keep up to date records
The first step to implementing effective inventory forecasting is knowing how much stock you already have. This sounds a lot simpler than it actually is. These days, companies often keep stock in different warehouses and manage them using multiple sales channels. As a result, it becomes harder to receive real-time updates on when stock is sold, received or returned.
One way to fix this is by implementing what we call a perpetual inventory system. In short, this is an electronic stock record that allows you to track changes to your stock count in real time.
Perpetual inventory systems significantly diminish the chances of having inexact stock counts and provide you with accurate sales data. The repercussions that this has for inventory forecasting are immense. Being able to access live data on the go means that you can tweak your inventory predictions in real time, making it easier to react to unexpected peaks or droughts in sales.
2. Use both qualitative and quantitative methods
As mentioned earlier, effective stock control comes down to striking the right balance. There is no better example than the combination of qualitative and quantitative inventory forecasting. In short, the former involves predicting future sales demand by looking at recent macro socio-economic factors such as a financial recession or Brexit. By making an informed guess on how these watershed moments will affect sales, you will be closer to reaching optimal stock levels.
Qualitative inventory forecasting is a useful tool to manage your stock effectively – particularly when sales data is lacking. However, that doesn’t mean that you should rely on it alone. And that’s where quantitative inventory forecasting comes in.
In a nutshell, the quantitative method involves basing your prediction on objective, historical sales data. In theory, this can be any period of time you consider relevant. But in practice, it is always recommended to look at the bigger picture. The best way to go about quantitative sales forecasting is by investing in a multi-channel stock management solution that has access to historical trends reports.
By combining both qualitative and quantitative methods, you will get the best of both worlds. The quantitative method will present you with an objective account of previous sales data, while the qualitative method will allow you to put those numbers into context. You can then adapt your business to unexpected changes in consumer demand.
3. Use inventory forecasting software
Thanks to the wonders of technology, being on top of your inventory has never been easier. In the past, only large companies with lots of cash to spare could afford to implement quality stock control software. Smaller businesses were often stuck with pre-historic inventory software that’s impossible to navigate. Fortunately, that’s not the case any longer. Whatever their size and cash flow, all companies can benefit from using inventory forecasting software nowadays.
It is not an understatement to say that the advent of affordable stock control software has been a game-changer for small and medium businesses. It has allowed organisations to streamline their stock management solution and maximise the accuracy of their inventory forecasting. By basing your inventory decisions on real-time data, you will dramatically reduce the chances of over or understocking.
That is only one of the many advantages that inventory forecasting software brings to the table. One of the most overlooked benefits of this kind of software is that it allows companies to implement a unified cross-department system. Thanks to its versatility, a quality stock control software solution such as Profit4 can be used by all departments from Finance to Sales. This means that every single person in your company will have access to the same data, allowing all departments to be on the same page.
Even better, a stock control solution can help you to track seasonal trends. After all, seasonal demand fluctuates in all industries from food to tech. By allowing you to closely monitor the performance of all your products, an inventory control software will help to identify peaks and troughs in demand.
Do you want to know what the cherry on top is? Inventory management solutions often offer seamless eCommerce integration, simplifying a company’s stock operation to unimaginable levels.
Start taking control of your stock today
Even if you’re a natural at sales, your good instinct should always be reinforced by objective data. If you want to start gaining control of your inventory forecasting and avoid unpleasant surprises, start investing in stock control software today.
OGL Software’s stock control solution offers all the features you need to be on top of your inventory. From usage and trends reports to perpetual stock counts, we can equip your organisation with a plethora of tools that will give you an edge over rival businesses.