Importance of inventory forecasting and 5 problems it can solve

Any business that sells tangible goods needs to have a strong inventory forecasting strategy. Inventory forecasting is the act of planning ahead to have reliable predictions of inventory levels for both the immediate future and the long term. Without a reliable inventory forecast, many problems can arise, and in today’s business world, organizations cannot afford to fall behind the competition. These are some of the problems that can be alleviated through inventory forecasting.

inventory shortage
If a business experiences an unexpected surge in sales of a particular good, it may run out of stock before it can meet customer demand. This will lead to angry customers who may switch brand loyalty or demand lower costs and refunds. Rush orders can be placed, but they are expensive and cut profit margins considerably; that’s not an option for volume-reliant businesses. While it is impossible to predict the future, inventory forecasting can help a business prepare for these types of situations by analyzing past trends and applying them to future expectations.

A strong inventory forecasting strategy will help companies avoid shortages by applying these past trends to their present and future sales and orders. When these shortages are avoided, the right amount of inventory will be available to fill orders as they arrive, saving the company money on rush manufacturing and expedited shipping. If, historically, a certain product has sold in greater quantity during certain months of the year, inventory forecasting can help a company plan for this and have more products and materials ready to meet that increased demand.

excess inventory
It may seem that the best way to prevent a shortage is simply to have much more supply available than is required. This, however, is not a good business decision and can lead to other problems. Storage is expensive, and if a product sits in a warehouse for an extended period of time without moving, it is essentially a waste of money for the company.

Inventory forecasting helps a company plan for the amount of product that will be on hand and manage these numbers efficiently. By having a good idea of ​​how much they can expect to sell, they can order enough so they don’t overstock their shelves and drive up their costs. This can be accomplished by analyzing seasonal trends and paying attention to the overall industry market.

Perishables can only be stored for a certain amount of time, so overproducing them would lead to spoilage and even more money down the drain. This is not to mention the labor costs that are inherent in storing and moving these items. Forecasting can help companies keep their warehouses at optimal levels so they don’t rack up charges due to excess inventory. When a business has a clear idea of ​​how many perishable items it can expect to sell in the coming months, it can take the appropriate steps to ensure that losses due to spoilage are minimized.

delayed deliveries
Forecasting not only benefits inventory levels, but helps optimize the delivery and shipping process. If a warehouse is overloaded with merchandise, it can take longer to load or unload merchandise onto the trucks that move it. When inventory has been accurately forecasted, this process can be made more efficient and goods can be moved faster than expected. By reducing the need to produce rush orders, there’s less driver time waiting for manufacturing and more time on the road, making deliveries on time and keeping customers happy.

Forecasting also helps warehouses make the right decisions when it comes to hiring workers and scheduling their hours. A poorly managed warehouse may not have enough workers to load a truck or assemble a line of products in the final hour when an urgent shipment arises. However, a warehouse that practices inventory forecasting will know how many employees it needs on site to keep its shipments moving according to its customers’ schedule.

This also helps in scheduling pickups and deliveries. When a warehouse has a clear picture of how many shipments they will have over the next week, they can line up trucks ahead of time. This saves them from having to pay special fees for last-minute expedited shipments and helps them schedule load times to better avoid detention charges that accrue when a product isn’t ready to ship.

Production scheduling
This goes hand in hand with the improvement in delivery times. Because the trucks will line up ahead of time, the warehouse will know how much time they have to make a particular product. The team will be able to work together to minimize inefficiencies and have the right product lines ready to ship when it’s time to ship.

Inventory forecasting allows multiple warehouses to communicate more effectively, coordinating their time to maintain stronger production practices. A warehouse may specialize in a particular part that must be completed before the next step in production can take place. They can use the inventory forecast to schedule their production and do it in conjunction with the next warehouse so everyone is ready for the final step.

Obsolete inventory
Many companies have products that they know will become obsolete at some point in the future. If they have an overload of inventory on hand when the product is no longer sold, then they will have to bear the loss of funds on the obsolete products. The forecast can help identify which products will become obsolete by keeping abreast of current sales trends and maintaining demand for these items. By slowly working to eliminate them, inventory forecasting helps companies save money on obsolescence costs.

Forecasting doesn’t just mean slowing down the production of these obsolete products. When an organization realizes that a product needs to be phased out, it can make pricing decisions on material that is already on the market. They may decide to put certain items on clearance, lowering prices to encourage bargain shoppers to purchase the item at a reduced price. This can cut profit a bit, but it’s better than having a total loss on the item when it reaches total obsolescence.

Stronger relationships with suppliers
Suppliers appreciate it when they benefit from a consistent and well-maintained production and delivery schedule. If a business constantly needs urgent last-minute shipments, it puts a lot of pressure on its vendors and suppliers. This can hurt the supplier’s productivity and profit levels, requiring them to neglect other, more organized customers in favor of the poorly managed warehouse.

In many cases, this can lead to a vendor terminating the customer or refusing to do business with the customer. This can easily be prevented by having a more robust inventory forecasting program in place. With consistent and reliable shipping, a supplier may even offer discounts as a reward for being a hassle-free shipping partner. Everyone wants to please their customers, but there are times when suppliers feel it’s not worth going the extra mile to meet the demands of a company that doesn’t respect their processes.

Improved sales forecast
Inventory forecasting is not limited to the physical aspects of the product. It can also help with revenue and profit forecasting so the sales team can set expectations and make decisions based on thorough analysis. This can help sales reps target specific products based on variables like seasonality, market trends, and holidays.

Using past trends, sales reps can also determine the best times to offer promotional pricing and drive a more aggressive marketing campaign. When the sales team and the warehouse work together, they can create a more cohesive and effective sales strategy that will make the company more profitable in the long run. This will make the company busier in all aspects and they will benefit from the efficiency that comes with inventory forecasting.

Increased customer satisfaction
All of these things together make up the most important part of doing business: happy customers. The fewer issues customers have to hear about or compensate for during the manufacturing process, the happier they will be. It is not the customer’s responsibility to compensate for missed production schedules or late deliveries. That burden falls solely on the manufacturer’s shoulders, and they must do everything they can to minimize these issues.

Inventory forecasting is one of the most important parts of keeping customers coming back. When they can count on a consistent schedule and a sufficient amount of stock, they will be happy to work with your supplier. The key to maintaining these levels is to implement robust inventory management software like the EMERGE app. Employees will be more efficient and customers will benefit from a trustworthy and satisfying relationship.