What is Inventory Forecasting in Business?

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When it comes to finding the best inventory forecasting software on the market, there are several factors that should play into your decision. First and foremost, it is important to understand what inventory forecasting is. Inventory forecasting is a process involved in demand planning and operations that provides a future analysis of how much product you will have in your inventory. Through identifying trends, averages, and seasonality, the best inventory forecasting software systems are able to generate a forecast of what you will sell, how much you should have on hand, how much you should plan on purchasing, when to purchase it, and several other factors that play into the demand planning process.
Inventory forecasting software can help save a company a substantial amount of money in multiple ways. One of the most common and significant ways that inventory forecasting can save a company money is through avoiding over-stock and stock-out situations. When you do not have a solid plan for your inventory, you could run into a stock-out. A stock out is when you have a popular item in your inventory, but then you do not have enough of that item to keep up with the demand and therefore you lose out on potential sales that you could have made.
A lack of popular inventory could have been cause by several different problems within a supply chain. Perhaps you had too much of a less popular item taking up inventory space and so you could not order more of a popular product because there was no space for it. There is also a chance that you were not prepared and simply did not predict that item to sell as much as it did. These are all problems that can be solved through the utilization of inventory forecasting software.
Another common situation where inventory forecasting software would benefit a business is in an over-stock situation. This is when you end up getting too much inventory of a product that will not sell. You could lose money here through, what we mentioned earlier, less-popular items taking up valuable inventory space that could have been used to house popular, high profit or quick moving, products. Another way to lose money from over-stocks is by having a high number of slow-moving products that have a short product life. For example, if you order a lot of a perishable good (let’s take milk for example) and you do not sell it in a timely manner, than that product will not be able to be sold and must be thrown away. There could also be situations where you have a lot of inventory that may be temperature sensitive, like ice cream. If you spend a lot of money o properly house those products and they are not selling, you are footing the bill for substantial energy cost that would not have otherwise occurred.
Inventory forecasting software solves these issues and more, subsequently paying for itself in the process. This brings us to our next consideration, now that you can understand some of the value inventory forecasting software brings to the table. Because inventory forecasting software is cutting edge and can potentially save millions (depending on the size of the corporation) it comes at a high price. The best inventory forecasting software systems can raise anywhere from a few hundred to a few million dollars a month. There is an incredible array of systems that can work for any budget.
If you are a smaller company that may be interested in moving from a custom, home-grown forecasting solution, you may want to look into a company like forecastingsoftware.com that only charges around $200 per month for inventory forecasting software services. The disadvantage of inventory forecasting software solutions like that is that they may not have the features you’re looking for. Foreecastingsoftware.com for example, only provides forecasting and requires you to integrate with your own planning solution. When you get to the point where you are ready for an entire planning suite with custom ERP integration, business forecasting, sales forecasting, demand planning, capacity planning, sales and operations planning, etc., on top of inventory forecasting software, you may then want to look for a system that can grow with you like the company Avercast. Companies like Avercast are a little pricier but pay for themselves in what they allow you to save. They also offer different solutions and customizations for different plans so if you have a very good idea of exactly what you are looking for, then you may be able to save money by not paying for excessive tech you do not need.
Now that you have an idea of what inventory forecasting software can do and how much it can cost you, let’s move to how it works. The best inventory forecasting software systems take your historical sales data from previous years and run it through a series of forecasting methods that analyze the data for trends, moving averages, and seasonality. Depending on the system that you choose, there could be anywhere from 5 to 200+ unique algorithms designed to predict the upcoming inventory. Generally speaking, the more algorithms a company has, the more accurate the system.
Even with the technological advances of our day, no inventory forecasting software is going to be 100% accurate. Sometimes, you may want to run a unique promotion, or any number of internal things could affect your forecast. Choosing an inventory software system that allows you to make custom adjustments is important to maintaining accuracy for the unaffected periods. Make sure to always search for a company that is willing to work with you. Training and support fees can be expensive so making sure that the company offers genuine, effective customer support can be another essential feature that should influence your decision.
Now you should have all the tools necessary for your success in finding the best inventory forecasting software system for your needs. I hope that I have been able to present the important characteristics in a way that is easy to digest and share with other members of your team and company. Goodluck and happy forecasting!