Inventory forecasting is a critical component of any good inventory management strategy. The purpose of forecasting inventory needs is to accurately predict the right amount of supplies, materials, and other stock your business must keep on hand to meet customer demand without overstocking. The chief benefit of inventory forecasting is creating a more productive and profitable business through improved customer service and cash flow.
This article will dive into the basics of inventory forecasting and the strategy is crucial to businesses of every shape and size. The article will also touch on how to forecast inventory in various ways. Plus, we’ve included an inventory forecast Excel template to help you get started.
Why forecast inventory?
Forecasting inventory is essential for virtually every type of business. Chiefly, accurate inventory forecasting leads to improved customer satisfaction and organizational efficiency, all while reducing various overhead costs.
When your business has the inventory its customers want on hand, customers get what they need right away, improving their experience and securing their loyalty. This is true regardless of what industry your organization is in. No customer wishes to wait, and the ability to swiftly meet demand helps ensure those valuable customers don’t go shopping for better and faster service elsewhere.
Next, inventory forecasting optimizes operations within organizations. By knowing exactly what inventory a business needs at any given time, many aspects of a company will run much more smoothly. This includes: providing items and services to customers, completing work on time, quickly and confidently preparing trucks for jobs, and always having high-demand materials on hand the minute a service call begins.
Finally, intelligent inventory forecasting can help businesses become more profitable. This is achieved primarily by reducing excess inventory, which in turn lowers holding costs across the board. This not only saves organizations money on storage but also on insurance, inventory shrinkage and obsolescence, and the labor costs associated with managing and auditing inventory that is not yet needed.
Forecasting and inventory control
Inventory control is the practice of keeping enough inventory on hand to rapidly meet customer demand without overstocking. It’s a balancing act that’s been proven to make companies markedly more profitable and productive.
Effective inventory forecasting serves as the foundation of optimized inventory control. Without a strong understanding of exactly what a business needs in the future, even the savviest of stakeholders can’t make good decisions about what inventory to order . . . or how much inventory a business can afford to keep on hand.
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How to forecast inventory
There are various ways to forecast inventory needs, and there is no one-size-fits-all solution. Depending on your business’s size, budget, and access to certain technologies, you’ll want to craft an inventory forecasting strategy that works for you.
Here are a few of the different ways organizations forecast inventory:
1. Leaning on past data
Regardless of your organization’s budget for inventory forecasting, it’s impossible to make intelligent decisions about future stock levels without looking into the past. Whether your organization keeps track of inventory usage on a sheet of paper, a spreadsheet, or within inventory management software, it’s essential to lean on that data to identify patterns in inventory usage.
Things to look out for include annual patterns, how seasonality affects demand fluctuations, and how much (if at all) changing market conditions influence customer demand.
2. Weighing data against market conditions
Fluctuations in demand aren’t always predictable. Many businesses, such as those in the construction industry, know how volatile demand can be. On the other hand, repair technicians tend to enjoy more steady demand, as appliances break even when the real estate market cools.
Regardless of how stable your industry’s demand is, reviewing past inventory usage can help your team determine a baseline minimum that can be tweaked over time. In other words, simply knowing how vulnerable your business is to external conditions is valuable knowledge in and of itself.
3. Leveraging supplier and supply chain insights
If your business is heavily influenced by changing market conditions, one of the best things you can do is align future inventory forecasts with these predictions. There are various ways to ascertain this information, but one of the simplest and most effective is establishing good communication with suppliers.
These vendors are often quite attuned to vulnerabilities in your shared supply chain network and can prove to be excellent resources when planning ahead. Additionally, solid relationships with suppliers can help give your organization a leg up when certain inventory becomes hard to come by.
Suppliers can provide valuable insight about lead times, potential delays, suppliers a notch above them in the supply chain that have not been performing, and any other broader concerns that may ultimately affect your access to the inventory you and your customers need.
4. Leaning on technology—and humans, too
There are a variety of advanced technologies on the market that can help your organization better forecast inventory needs. Additionally, simple and easy-to-use programs, such as inventory management software, can help you keep air-tight inventory records that lead to simple and meaningful inventory forecasting.
Additionally, some organizations choose to work with third-party experts who can provide insight and advice on inventory forecasting. This can be particularly useful if your organization has found that its inventory forecasts tend to be incorrect. Often, paying for a little extra help more than covers the losses incurred from overstocking or understocking.
5. Being prepared for last-minute surges
Even the most robust inventory forecasting strategy cannot protect an organization from the unpredictable. Last-minute surges happen, and they’re not something even the best forecasters can see coming. From pandemics to natural disasters, some events simply change the market overnight, and while it’s impossible to predict them, it’s never a bad idea to have a plan in place.
A strong relationship with vendors that can ship items quickly and at scale can give you a significant advantage in times of uncertainty.
6. Adjusting forecasts often
No inventory forecast is immune to the occasional tweak. It’s nearly impossible to predict precisely how much inventory you will need, even with every advantage and resource at your fingertips.
The best way to optimize forecasts is to revisit data and market conditions frequently and then adjust forecast levels accordingly.
Inventory Forecasting Excel Template
Whether you plan to use a spreadsheet or an inventory app as the foundation of your inventory forecasting strategy, you’ll need to gather the following data:
- Historical usage
- Current inventory levels
- Minimum inventory levels
- Forecasted demand
- Reorder point
- Lead time
- Safety stock
Free Download: Inventory Forecast Template
To help you get started, we’ve created a free inventory forecasting Excel template. Record all of the following data in this template and revisit it at regular intervals to inform your next inventory forecast. You can upload this inventory data directly into Sortly if you decide to upgrade from spreadsheets to automated inventory tracking.
About Sortly
Sortly is an inventory management solution that helps you track, manage, and organize your inventory from any device, in any location. We’re an easy-to-use inventory software that’s perfect for large or small businesses. Sortly builds inventory tracking seamlessly into your workday so you can save time and money, satisfy your customers, and help your business succeed.
With Sortly, you can track inventory, supplies, parts, tools, assets like equipment and machinery, and anything else that matters to your business. It comes equipped with smart features like barcoding & QR coding, low stock alerts, customizable folders, data-rich reporting, and much more. Best of all, you can update inventory right from your smartphone, whether you’re on the job, in the warehouse, or on the go.
Whether you’re just getting started with inventory management or you’re an expert looking for a more efficient solution, we can transform how your company manages inventory—so you can focus on building your business. That’s why over 15,000 businesses globally trust us as their inventory management solution.
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