September 21, 2023

Businesses are hard to run. It’s impossible to predict what will happen, yet it’s necessary to answer questions such as these:

  • In order to be in full stock for each SKU, how many units of inventory must you have on hand?
  • After you have received products into your inventory, how to manage them?
  • What will happen to those projections as time passes?
  • What are your expectations for the next year?

OK, so it seems like you know very little about demand for your product. It’s okay! Forecasting can be a very challenging task, especially without inventory forecasting software. .

What does demand forecasting entail?

Forecasting the demand for goods and services allows the business to make better-informed decisions about supplies. Its primae example is amazon stranded inventory system. By estimating future sales from historical data, companies can determine inventory needs and run flash sales while meeting customers’ expectations by optimizing inventory.

The importance of demand forecasting in e-commerce

Business cannot exist without demand. The right decisions regarding marketing spending, production, staffing, etc. Cannot be made without a clear understanding of demand. The forecasting of demand is never 100% accurate. Improve customer service as well when you achieve all of these.

  1. Budget preparation

it provides opportunities to expand, to deal with inventory, to control costs, to hire, and to analyze expenditures. All operations and strategic plans are based on predicting demand.

  1. Production planning and scheduling

Your customers want products when they want them, so demand forecasting lets you provide them with that. Being sold out for long periods of time kills progress (or reputation).

  1. Inventory management

As the more inventory you carry, the more expensive it is to store, demand forecasting can help you save money on both inventory purchase orders and warehousing. Maintaining the right balance between inventory and demand can help you minimize inventory costs.

With Inventooly, you can accurately track inventory levels over time, allowing you to restock or forecast inventory over time.

  1. The development of a pricing strategy

A business’s production schedule shouldn’t just be optimized to match demand, but it should also adjust prices according to demand.

A temporary increase in demand for a product may result from slashing prices and putting it on promotion. However, no increase would have occurred without the sale. As an exclusive offer, you can increase the price of a high-demand product if there is limited supply. New entrants may increase the supply, though, so keep an eye out for them.

How to forecast demand in 4 steps

Demand forecasting can be a challenging process. Flexibility can help you cope with sporadic influxes, but a longer-term strategy is equally important. Below are four steps you can use for forecasting demands.

  1. Identify your goals

A clear purpose should be attached to demand forecasting. The core function of the system is to predict when, what, and how many customers will spend. Choose a time period, the products or general categories you intend to forecast, and whether you’re forecasting demand for everyone or only for a particular group of people.

Ensure that it caters to your financial planners, product marketer, logistics, and operational teams, without bias. Using decision-making forecasting processes to understand online consumer behavior will allow you to create the right demand planning.

  1. Data collection and recording

A cohesive view of product demand and sales forecasts can be gained by integrating data from all your sales channels. It will be easier to forecast growth and trend projections by being able to see when and what SKU(s) were ordered, and see if your forecasts and results matched up.

Returns from ecommerce can also be very expensive, so don’t ignore them. We should analyze and adjust products with high return rates according to the reasons for returns. Your production may also need to be adjusted if 10% of items are being returned.

  1. Analyze data and measure it

A repeatable data analysis process is required, whether you use automation or predictive analytics. In order to adapt your next forecast, you must compare what you predicted to actual sales. It was not possible for the brands to fulfill orders in a timely fashion if they had underestimated this volume. A bad forecast would have resulted in them spending a lot of money on inventory that is just sitting and not generating revenue as soon as expected.

You may find that as your company grows, you will need to add in other pieces of information such as obsolete stock, frequent stockouts. These all details need to be tracked, so you can do better forecasting in the future.

  1. Plan your budget accordingly

If you’ve established a feedback loop, you can update your budget to allocate funds based on growth goals, and create your next forecast (hopefully more accurately). By forecasting demand, you can cut the cost of inventories, plan marketing expenditures, future headcounts, and even develop new products.

  • Amount of time it takes for products to sell
  • What are the slow-moving items?
  • Your inventory is expected to last for how many days based on inventory velocity (based on SKUs)
  • Your customers and where your products are shipped from (allowing you to compare current and ideal distribution)
  • What is your profit by order, what is your shipping expense, and what is the average order amount for your customers?
  • Progress and status of orders each day

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