This post was written by our friends at Inventory Planner for the TurnKey Playbook for Amazon Blog
While demand planning can be intimidating, it is the backbone of any eCommerce site. Inventory forecasting will help you increase profits, plan your sales goals, and show you when you need to order merchandise.
What Is Demand Planning?
Demand planning utilizes inventory forecasting to improve planning accuracy and align inventory levels with the demand cycle. In short, inventory levels are coordinated with customer demand. You want to have enough inventory to meet demand but avoid overstock. Solid demand planning lowers costs and leads to increased sales margins and profitability.
What Can Inventory Forecasting Do for Your Company?
Inventory forecasting is essential to profitable operations and increased customer satisfaction. Without accurate forecasting, maintaining a lean and nimble inventory can be challenging. Here is how your business can benefit from inventory forecasting:
Reduced Inventory Costs
Accurate inventory forecasting means lean and responsive inventory. In that way, businesses only purchase and store what will sell. Forecasting enables merchants to keep track of sales and anticipated demand.
When you have the right inventory amounts, you don’t need to order more than what will sell, and customers can enjoy accurate and timely delivery of their products.
Plan Your Goals
Know what your goals are for your inventory and ensure that they are realistic. There are many variables in your stock, and you must consider these when goal-setting. If you don’t have some reasonable idea of what will be needed, you run the risk of tying up your capital unnecessarily. Leading you to spend money that will not earn you an immediate return in the form of unsold inventory.
Inventory forecasting also makes it easier for you to project anticipated margins. You can determine how much will sell, what revenue you anticipate to receive, and how much profit you will eventually make.
Proper forecasts mean critical business decisions can be made with greater accuracy. For example, decisions regarding business expansion, cutting costs, or requesting outside funding can be made based on projected inventory and sales.
Insight About Your Current Stock
Forecasting provides a framework for obtaining detailed information. If you manage multiple warehouses, you can track the demand and availability of a particular product to determine the quantity you need. Forecasting allows you to plan for the pricing and movement of specific products in advance. For example, a product that sells well on the West Coast might not sell as well on the East Coast. Demand forecasting allows you to optimize your stock so that the right products are always in the right place.
Forecasting gives you visibility into your current inventory so you can make better informed and more strategic decisions. In seeing demand trends by category or product option, you’ll have more information to decide which new products to add to your catalog. For example, if red dresses show increased sales month over month for the last year, you can forecast that demand will continue to grow.
Order What You Need, When You Need It
Want to determine which products will be available and in what quantities? This is another reason to use demand planning. This ensures that you order items only when they’re needed, thereby saving on inventory costs and improving cash flow. More efficient ordering enables you to order the right items at the right time for customers. This leads to effective cost management and continuous growth.
How Does Inventory Forecasting Work?
To determine what inventory you should have, begin with a forecast of future sales. Sales for the coming 30, 60 or 90 days are based on past sales velocity and seasonality of the products.
Consider the following for an accurate sales forecast:
- Sales velocity is the rate of sales, minus stockouts (days out of stock). Use sales velocity rather than average sales over the past 30 days because you want to know the rate of sales when inventory is available for sale. If you don’t omit days when inventory was out of stock, then you could underestimate future sales.
- Seasonality will inform you if the emphasis for past sales should be on the most recent months or should be on trends from 12 months prior.
- Sales trends show you if demand is holding steady or increasing in recent months.
While many factors come into demand planning, you simply cannot afford to ignore it. Inventory forecasting lets you to have the fingers on the pulse of your business. Your inventory will be adequate and nimble, making for greater profit margins and more money for you to invest in your business.
About Inventory Planner
Inventory Planner launched in 2012 to help eCommerce merchants save time and money when purchasing inventory to better meet customer demand. Inventory Planner supports merchants as they grow to see information from all of their sales channels. Merchants use Inventory Planner’s replenishment recommendations and assist with inventory planning, forecasting, reporting, and purchase order creation. Learn more about how Inventory Planner helps Amazon sellers to forecast demand and improve profits.