Let's take a look at the importance of demand forecasting.
It’s critical that your inventory system can cope with the complexities of the ever-changing sales and distribution landscape. Increased global competition has new products always entering the market, and multiple sales channels – from traditional brick and mortar stores through to online shopping, and third-party marketplaces like Amazon – give your customers greater access and choice. What’s more, customers are more discerning than ever. If you make a mistake or delay shipment of your products because your demand forecasting is not up to scratch, they are likely to leave you and spend their money elsewhere.
In this week’s blog, we tackle some common inventory mistakes and how you can overcome them.
1. Existing between extremes – Stockpiling or stock minimization
With the fear and uncertainty surrounding Brexit and its impact on supply chains, the UK’s National Health Service (NHS) is looking at stockpiling pharmaceuticals in preparation.
But stockpiling comes with problems, like rising storage costs, space limitations, and consumers demanding access to fresh goods or produce (products with short expiry periods can’t be held in storage for too long). A lot of capital gets locked up in renting warehouse space and you run the risk of not being able to sell the stock before it becomes obsolete.
At the other extreme, some organisations choose to cut their inventory to the bone. Their rationale is anything in storage is a liability. But companies need to have enough stock on hand to be able to satisfy consumer demand and generate sales. You might lose out on potential profits if you can’t fulfill orders, or if they have to be delayed. This can have a huge impact on customer satisfaction and your reputation.
The answer? Stock optimization. This means you don’t have too much cash locked into underused stock, but you also have a healthy amount of stock to satisfy demand. You can achieve stock optimization with a smart inventory forecasting system that considers and analyses changes in customer demand – from the impact of seasonality to responding to a changing political landscape.
2. Slow to embrace innovative technologies
Considering the ramifications of poorly managed inventory and lack of forecasting the demand – missed sales opportunities, dwindling profits, obsolete stock, customers shopping elsewhere and even business failure – it’s surprising how many companies still rely on spreadsheets, and even gut instinct, to make decisions around inventory.
New digital technologies are intuitive, analytical, and dynamic because of their machine learning capabilities. Most wholesalers and distributors have multiple stores and warehouses, product lines that have a number of ingredients or components, and multiple sales channels – from physical retail stores to online. Therefore, modern businesses need a robust inventory forecasting system that is multi-layered, adjusts to fluid consumer demand and is easily scalable.
Inventory systems also need to be fast and allow for collaboration. Spreadsheets and gut instincts just don’t cut it.
3. Lack of visibility
Poor visibility of your inventory and consumer demand can happen when your inventory systems are neither integrated nor cloud-based, and don’t provide you with real-time updates.
Visibility is power. When your system analyses trends and displays them in one place – readily accessible anywhere and at any time – you can be more responsive and purchase more stock, as and when you need it.
You need to have visibility across your warehouses, for each component or ingredient of your product, and for each of your supplier’s lead times. When you have this information, you can adjust and configure your inventory and orders ahead of time, to keep up with changing consumer demand.
4. Not accounting for external factors
External factors like Brexit, natural disasters, shifting trends, new products to the market, and even poor weather will have an impact on your purchasing plan and inventory forecasting.
When businesses operate in their own internal bubble, it’s highly likely that their demand planning is unreliable.
It’s true that customer behavior can be as unpredictable as the weather. But a data-driven approach to inventory forecasting which draws on historical sales information, product analysis and machine learning can give you increased clarity and certainty.
StockTrim is a reliable inventory forecasting system that selects the best forecast model for each of your products. Some products may have a flat demand, others may have an increasing trend, or others may experience seasonality or sudden changes in popularity.
5. Lack of automation
Without question, tasks like raising purchase orders should be automated. Your staff skills and time are much better suited to tasks that drive sales and increase customer satisfaction.
Another task that can be automated is detailed trend analysis. Spreadsheet formulas can be clunky and the output is only as good as what you enter. Automated and regularly updated trend analysis allows you to clearly see what is happening and will give you confidence in your predictions.
Moving To Smarter, Intuitive Inventory Planning Software
Many companies stick with what they know because they’re worried that smart, intuitive and data-driven demand forecasting software is expensive and complicated to run.
But that’s wrong. With subscriptions to StockTrim starting from just $99 per month, you can quash your inventory planning worries. We’ve developed it to integrate easily with your other systems and to make the on-boarding process quick and simple.
Free trial
StockTrim can save your business a lot of time, stress and money. If you want to save on working capital, automate your processes and receive data-driven insights to optimize your inventory, start with our free 14-day trial.
