How to Minimize Forecasting Errors

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Inventory-based businesses are constantly faced with forecasting errors. They may fail to predict the high demand for inventory, causing missed sales. Or they may fail to accurately predict a decline in demand resulting in unwanted merchandise, which can mean taking a loss.

By managing your inventory and demand forecasting, you can keep up with your customer’s needs with a higher overall level of customer satisfaction. Ask yourself these 6 questions to help minimize forecasting errors.

1. Do You Underestimate Lead Time?

Lead time helps determine how long it will take for items to make it to you once the order has been placed. If you accurately predict the lead time, items will show up when you need them. On the other hand, if you assume that items will make it to you sooner than your suppliers can create them or they can move through the supply chain, you may find it much more difficult to keep up with customer demand.

Using the right supply chain management software can make it much easier to predict overall lead time. The right supply chain management solution will help keep up with supplier performance, which can help make decisions on what you need and when you need to place an order.

2. Do You Fail to Consider Delays?

Supply chain delays have made their mark in the past several years. Weather delays, Labor and driver shortages, and other challenges have made it difficult for many businesses to keep inventory on the shelves or to keep up with consumer demand. Many businesses fail to consider even known delays, like the Chinese New Year or the known shipping challenges over the holidays.

If you fail to factor those potential delays into your planning, you may find that it’s much more difficult to keep up with the inventory you need. You may need solutions to diversify your suppliers to help protect your supply chain.

3. Do You Ignore Seasonal Variance?

Demand for key items can vary from one season to the next. Unfortunately, many businesses fail to accurately predict those changes. If you sell seasonal items, from school supplies to holiday decor, you need to take seasonal variance into account.

Other businesses, however, might fail to predict how those changes will impact their business. For example, you might not prepare for an increase in purchases around the holidays or pay attention to how weather changes from year to year have the potential to impact demand. Sales of some items may vary from one season to the next.

Your demand forecasting software can help keep up with seasonal variance, including the changes in consumer needs based on a variety of factors, including economic changes. By factoring in those economic challenges, you can do a better job of predicting actual demand across your business.

4. Do You Poorly Predict Safety Stock Needs?

Keeping safety stock on hand can help ensure that you can lay your hands on the items customers need when they need them, even if that demand only comes up a couple of times a year. To maintain effective demand forecasting, you must keep up with your safety stock needs.

Some businesses may not pay attention to when those items start moving out of their warehouses, including when overstock of key items starts to dwindle. As a result, they may have a harder time predicting upcoming trends, which can increase the risk of stockouts.

5. Do You Look at Your Sales Data?

Your sales department has a clear view of how consumer demand is shifting within your business. Salespeople realize what trends are taking place before anyone else. They speak directly to customers, which means they may have a better idea of what shifts consumers have made and when those shifts occurred.

Loop in on your sales team as you predict demand. You may consider things like:

  • What questions are potential customers asking? How have they changed?
  • Are customers looking at different items than before?
  • Are customer trends shifting?

By bringing the sales team into the conversation, you can increase the accuracy of your forecasting efforts.

6. Do You Ignore Promotions?

The goal of your marketing promotions is often to increase sales. Frequently, those promotions will focus on increasing sales of a certain item.

Take a fast-food restaurant, for example. If that fast food restaurant starts advertising a specific seasonal option heavily, the goal is not just to bring customers into the restaurant, it’s to encourage them to purchase that specific item. Chances are, people seeing those ads will want to purchase that specific type of food because the ad triggered the desire.

If the restaurant does not have an adequate inventory of those items, customers will quickly choose to go to their competitors instead.

As you prepare your forecasting efforts, make sure you take your promotions into account. Holding a sale will increase sales of any items you’ve reduced the price of, and deeper markdowns may bring more overall inventory movement. Likewise, if you’re promoting an item heavily, you may need to plan to have more of that item on hand.

Do You Want to Improve Your Forecasting Efforts?

Demand and inventory forecasting is a critical, ongoing part of every inventory-based business. Not only do you need to keep up with the current demands of your customers, but you also need to prepare for the future. StockIQ offers a host of inventory forecasting and data analytics tools that can help keep your supply chain moving more smoothly and allow you to satisfy customer demand. Contact us today for more information about our solutions.

 

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