Maintaining inventory control is a mammoth task and healthy inventory levels are a necessary part of matching inventory stock with anticipated demand. Effective inventory control can be achieved by consolidating inventory processes into a single integrated system. A great inventory management system will be transparent and be able to count, track and record inventory data and movement in real time. An inventory system should have enough flexibility to react quickly to demand changes large and small.
Even with an inventory management system, however, estimating how much stock you need is still a challenge, which is where inventory demand forecasting comes into play. It helps businesses to accurately calculate safety stock and common inventory metrics such as reorder levels and minimum and maximum stock levels.
Best practice demand forecasting helps a business succeed in having the right product in the right place, at the right time. Combined with effective inventory management software, companies can streamline processes to significantly reduce mistakes and improve the bottom line.
Best practices for demand forecasting
Demand forecasting is certainly not an exact science, but that doesn’t mean you can’t utilise every available tool to improve the forecasting process. The following steps should be taken to help facilitate best practice demand forecasting:
- Create repeatable monthly processes. Improved demand forecasting accuracy requires a consistent, timely process that systematically analyses previous forecasts to compare with actual market results. The data will identify when your predictions were right or not, and what the market demand was. By following a monthly process and evaluating results, you can minimise future errors.
- Decide what to measure and how often you will measure it. To accurately forecast demand, you should focus on the most relevant data. Points to consider include POS data, frequency of stockouts, any amounts of obsolete stock, shipping and dispatch and even competitor sales information.
- Be sure to integrate data from all sales channel and combine the data from each individual product for all channels. Once this is done for all SKUs, you can see what channels offer the highest ROI for each product. This, in turn, will guide smarter decisions for inventory control.
- Measure forecast accuracy at the SKU, location and customer planning levels because a key driver of demand volatility is augmented consumer requirements.
Data is crucial, it is impossible to forecast demand if you don’t have accurate data. Best practice demand forecasting revolves around precise, up-to-date sales data, and utilising the first-hand knowledge of sales staff.
From production planning to inventory control, demand forecasting will help drive better decisions for the management and growth of your business. Demand forecasting can be achieved through quantitative analysis using historic sales data, predicted trends and/or a fair amount of guesswork.
