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As the owner of a growing retail business, an accurate understanding of customer sentiment will help you stock just enough of your hottest products and allocate your cash flow for optimal profitability.
Workforce management firm Altametrix defines inventory planning as the process of estimating future customer demand based on available historical sales data.
Many experts would have agreed to that definition in 2019, but Covid-19 has proven that even the best plans based solely on historical sales data can be disrupted by unforeseen circumstances. On top of possible global unrest, product sellers also need to factor in supply chain delays and fickle consumer tastes. Making a mistake in gauging the future popularity of a product can lead to obsolete stock if you overbuy, and stockouts if you buy too little.
Not an easy task..
But Cin7 is here to help you shine at forecasting demand. We’ll provide 5 inventory planning best practices here so you can increase your chances of success – increasing profit margins and reducing costs associated with stagnant inventory.
Inventory planning is a process of predicting what your customers will buy, how much they’ll buy and when they’ll buy it.
Whether production planning, inventory management or entering a new market, demand forecasting will help you make better decisions for managing and growing your business.
Accurate demand forecasting requires a consistent and repeatable monthly process that systematically analyzes previous forecasts and compares them to actual sales results.
Through this process, the data will show when your predictions were right or wrong and what actual market demand has been.
You can sort any “deviations” (when you were right or wrong) from highest to lowest and evaluate the top 20% to determine why you were wrong and how to be closer next time.
By following a monthly process and evaluating your past successes and failures, you will minimize future errors.
WIth an inventory and order management system that has robust analytics and reporting can measure virtually anything in your business. To accurately forecast demand, you should focus on the most relevant data points.
Here are a few data points you should consider measuring:
Feel free to add any more relevant data points to the list. Then, depending on your industry and rate of inventory turnover, choose whether to measure those data points on a weekly or monthly basis.
If you are a seller with multiple sales channels – a multichannel ecommerce strategy – then you should aggregate all the data from every sales channel for each individual product into a single data set.
Once you’ve done this for all of your SKUs, you’ll be able to see which channels offer the highest ROI for each product and what your shipping and order requirements will be – helping you to make smarter decisions.
A study by Gartner found that only 17% of respondents indicated that they conducted forecast demand at the SKU, location, and customer planning level.
This is unfortunate because a primary driver of demand volatility is increased customer requirements.
Mr. Steutermann, the research Vice President at Gartner said, “Customer or sales forecast accuracy should be measured for continuous improvement and accountability. The appropriate place to measure for continuous improvement is in the sales and operations planning (S&OP) review process.”
If you measure demand error down to the customer level, you’ll be able to better understand the source of the error – allowing you to improve your process.
You can’t accurately forecast demand if you don’t have accurate data.
Demand forecasting best practices revolve around access to up-to-date inventory, sales, raw materials and finished goods data.
To make smart forecasts, you’re going to need that data as close to real-time as possible so you don’t calculate demand with any missing data points and so you can continually forecast demand on a weekly or monthly basis with fresh information.
If you found this article helpful, and would like to learn more about Cin7 inventory and order management software, click here to book a demo.
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