Managing your inventory can be the difference between a good quarter and a great quarter. Refining and optimizing your inventory eliminates the guesswork, giving you exactly what you need, when you need it.
Traditional inventory management is notorious for being tedious and time-consuming. Thankfully, there’s simply no need for manual inventory planning anymore. We’re living in a glorious age of technology that can take those dull, laborious practices off our hands.
Here we’ll look at how technology can enhance your inventory management using smart forecasting.
What is smart inventory forecasting?
You’re likely already familiar with sales forecasting. It’s a practice that helps businesses plan their strategies for the upcoming months using historical data.
Smart inventory forecasting is similar, but it helps you plan your inventory to meet demand. That way, you’re only carrying the inventory you actually need rather than bulk ordering stock in hopes it will clear.
While the two concepts are similar in nature, knowing the difference can help improve accuracy and, in turn, performance. Inventory forecasting helps you factor in all relevant data, including sales trends, future events, and loss of sales due to a lack of stock. Essentially, you’re building a report of what you could achieve so long as you manage your inventory correctly.
To do this, you need to know the basics of inventory forecasting. There are a number of key factors you need to take note of to build accurate forecasts that offer value to the business.
Forecast period
The forecasting period is simply the amount of time you wish to work with. Most commonly, we see forecast periods of a month, a quarter, and a year. The period length you choose should reflect the following:
- Production cycle
- Inventory turnover rate
- Merchandise performance
- Supplier lead times
Maximum stock level
The maximum stock level is simply the measure of how much stock you can hold in your warehouse. Using maximum stock levels for your forecasting helps you to identify which items are subject to regular overstocks and vice versa.
This helps businesses to optimize their inventory space to reduce space allocation for lower-selling products in order to stock more of the fast-moving lines.
Trends
Customer habits are changing all the time — as much as we wish they wouldn’t! As retailers increase their digitization efforts, it feels as if new trends are popping up on a monthly basis.
Luckily, major changes to customer habits tend to stay on the same schedule, following the tax year and seasonal events. These can all be used to help predict sales for the upcoming months, allowing businesses to adapt their inventory as required.
Reorder point
There’s a fine art to reordering inventory. You have to predict when you’ll need a restock, how well the product will continue to sell, and order just enough that you aren’t left with a bunch of stock you have to reduce to clear.
To help you make better reordering decisions, you should consider:
- Lead times from vendors and suppliers
- How quickly your warehouse/distribution center receives inventory
- How much backup stock you have on hand
- Sales data
It’s also worth noting that a direct store delivery (DSD) distribution model can ease many pain points when it comes to reordering stock.
Click here for more information on direct-to-store distribution from Buffalo Market!
Now, obviously, this is a tricky job. That’s where the “smart” part comes in! By utilizing the right tech, businesses can automate almost every aspect of inventory forecasting. This gives you hyper-accurate results, without the tedium of manually sifting through sales data and managing spreadsheets.
What problems does smart inventory forecasting help solve?
In an ideal world, we would sell every bit of inventory we order without needing to discount items or funnel more money into marketing efforts. Unfortunately, the real world is far more unpredictable. This is why forecasting is so important for retailers.
Sales forecasting and inventory forecasting are often interchangeable, but not always. This is especially true for brick-and-mortar stores where there are a number of variables involved.
Weather plays a huge part in in-person sales. All it takes is a touch of rain to crater your targets for that day. Then you factor in traffic, public transportation, even a lack of close by parking spaces… It’s all a rich tapestry of unpredictability!
It’s far simpler for online stores to predict demand. The data tends to be steady, following seasonal trends and responding to marketing campaigns.
But even online retailers aren’t immune to unexpected changes. Over the past couple of years, we have seen immense disruption in the global supply chain due to a whole host of factors. This has caused endless issues for retailers who can no longer rely on the stability they were used to pre-pandemic.
With smart inventory forecasting, businesses can quickly adapt to the fast-changing landscape. They can easily update forecasts using more recent sales data to help them better manage their inventory in the face of new challenges.
Then there’s the human factor involved in forecasting. Whether you’re trying to build sales forecasts or inventory forecasts, there’s a huge amount of work involved.
An employee — or even a whole team — needs to sift through historical data to find the correct insights, organize countless spreadsheets, and even just keep an eye on what’s on the shelves. By utilizing smart inventory forecasting, you can say goodbye to all of this wasted time and let your employees focus on tangible actions that will grow the business.
How to get started with smart inventory forecasting
Getting started with smart inventory forecasting can be boiled down to 4 simple steps.
Analyze your company’s sales and performance
You need to create a baseline before you start forecasting. This usually involves manually including external factors we discussed early, such as weather, holidays, and the economy. This isn’t a fun step, but once it’s done, you will have a foundational dataset on which to base your forecasting.
With smart inventory projection, this is just one of the processes that can be automated!
Know your market and customer habits
Market research is crucial for any business. You need to understand your target audience on a deep level, including needs and pain points. This also includes keeping track of inventory turnover to help your decision-making processes.
To ensure you stay up to date with customer trends, make sure to regularly ask yourself:
- What are our target audience’s preferences?
- Does the customer base change on a seasonal basis?
- Do current customers keep up with new trends?
Your store’s POS system should be able to give you the insights you need to answer these questions.
Review your product mix
As customer trends come and go, so will some of the products you stock. Any good business will regularly review what items are selling well and what items could be doing better.
Plan strategies according to your inventory forecast
By building strategies around inventory forecasts — rather than sales forecasts — you can create a low-waste, high-profit strategy that really gives you a boost against your competitors.
Work with a tech-driven food and beverage distributor
Buffalo Market is on the cutting edge of technology in the food and beverage distribution sector. Our flagship app, Stampede, uses machine learning to forecast inventory and our direct store delivery distribution model ensures shelves are always fully stocked in regions customers want them the most.
To learn more about how Buffalo Market's faster, smarter distribution service can elevate your CPG or retail brand, schedule a demo with one of our experts today!
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