Inventory forecasting is a systematic process that helps determine inventory levels and the timing of purchasing inventory. 

Unfortunately, most business owners don’t know how to forecast inventory. Besides, many lack knowledge of the topic and find it difficult to forecast. 

There are five important tips to keep in mind when doing your inventory forecasting.

1. Gather Information from Highly Successful Suppliers of Similar Products

Many online forums and social media groups are great sources for finding these suppliers. Your supplier should be able to provide information on pricing, demand trends, and the latest inventory levels. 

Leveraging online platforms will help you get market intelligence and compare your needs to other suppliers. It can help you determine the average inventory levels and provide benchmark information for your forecasts.

Use forecasting methodologies not influenced by individual personal bias or preferences. Inadequate forecasting can harm your business’s bottom line and its ongoing success. 

In other words, never make forecasts based on gut feeling. It is better to use forecasting techniques that rely on external factors to avoid making decisions not supported by real-world data and facts.

2. Be Realistic

You must be realistic when forecasting inventory levels. In many cases, businesses get more products than necessary because they believe that the demand for their products will be high, which is often not the case. The result is a massive surplus of products sitting on shelves, which creates a huge financial burden due to unnecessary storage costs.

Also, be realistic about your forecasting dates. Many novice business owners think they can accurately forecast their inventory levels and manufacturing needs in only one month. 

In reality, you’ll only be able to produce an initial plan, and definite plans are impossible until you start manufacturing your products. For this reason, it is important to have a flexible manufacturing plan that can quickly adapt to changes in your inventory levels.

3. Carefully Investigate Your Suppliers’ Current Sales and Production Forecasts

You’ll need this information to produce the best possible projections of your inventory requirements. Be sure to get the detailed forecasts, including their assumptions on demand, cost trends, and supply points used when making their forecasts. They are great sources of information on these topics. 

However, to get the most accurate information, you will have to contact your suppliers and ask them for the information directly. On the other hand, if your suppliers are not forthcoming with their forecasts or don’t have many options, you may have to generate your own.

4. Invest in Inventory Management Software

If your business is small, you can use spreadsheet management. Still, if it involves more computers, you should look into inventory management software to help you keep track of your inventory. 

The software will automate tracking inventory levels, sales, and orders. It can also help you set up reordering thresholds so that you can always be sure to have the products your customers need in stock.

Remember to train your employees to use it to avoid confusion and delay in getting reliable information. Benefits of using inventory management software include the following:

  • Tracking inventory levels in real-time
  • Reordering thresholds to avoid stock-outs
  • Customers knowing when products are back in stock
  • Saving time on executing and managing inventory
  • Reducing the costs associated with inventory management

5. Review Your Inventory Regularly

It’s important to keep a close eye on your inventory levels to spot potential issues early on and make necessary adjustments to your forecasting process. Review your inventory levels regularly and adjust your forecast accordingly to ensure that you always have the right amount of inventory without overstocking or running out. 

You can achieve this by leveraging the voice of the consumer testing strategy to give you insights into what’s selling well and what’s not. Besides, it’ll help you understand customer behavior trends to predict future demand.

Conclusion

Forecasting inventory levels is a very important task for any business owner. It will allow you to plan and help you succeed as your business grows bigger and bigger. Besides, it will also help you cut costs and avoid unnecessary purchases.

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