As businesses scale, they need to investigate the accuracy of their inventory management and forecasting processes. Demand forecasting goes beyond simple estimates of product demand, looking into complex patterns over time to produce more accurate and timely predictions. Through better demand, an organization will be able to better manage inventory, increase revenue, and improve customer support.
The Major Pain Points of Inventory Management
Inventory management is extraordinarily complex. Every day, product demand can change. Trends, seasons, and customer demographics may all increase or reduce demand for specific items. These changes can lead to under buying, over buying, or buying the wrong items—all causing avoidable challenges for the company.
As companies expand, they often find themselves losing control of their inventory management. The more items there are to track, the less likely an in-depth analysis can be done on demand. While many inventory management systems can predict how much an item will be needed, they often aren't completing an in-depth analysis. Without the right supplying and distributing partners, companies are just guessing at best.
The Consequences of Poor Inventory Management
Poor inventory management can cost an organization both money and its reputation. When items can't be sold at full price, the company loses revenue. When customers aren't able to get what they want, the company’s reputation may suffer. Over time, poor inventory management cuts significantly into a company's profits and makes it less likely that customers will come to the company when they have specific needs.
At its core, the success of most companies rely on inventory control. Retailers need to be able to identify and stock the products that customers need and increase their revenue per square footage. It isn't just retail companies: automotive service shops need to be able to house the right parts, HVAC repair technicians need to have the right tools, and all companies need to have the supplies to ensure all operations can run comfortably. Inventory management can be a downfall or a tool to increase profitability.
The Advantages of Forecasting in the Supply Chain
“Smart” forecasting technology uses artificial intelligence and machine learning to help companies plan. Rather than having to manually adjust your inventory based on customer needs, you can use past samples of inventory data to determine patterns that indicate product demand. Even patterns such as seasonal purchasing can be accounted for, helping modify your projected demand based on past years and current market trends.
It can be difficult to perform such forecasting manually, as there are large amounts of data that need to be accounted for. A certain product may presently be in decline, but may see a boost every holiday season. A manual or traditional model of inventory management may be limited to the past few months, and therefore recommend that you cut back on supply. An inventory management system that digs deeper into analysis will realize that the product's demand will likely boost during the holiday season even though it's currently in decline.
While a business owner will be able to recognize these types of trends over their highest profit or most notable items, it's unlikely that they will be able to notice those trends over hundreds or thousands of inventory items—and that could result in lost revenue. Advanced forecasting makes it possible to capture these insights, even over the largest amounts of inventory and particularly complex inventory chains.
Advanced, strategic forecasting methods can be used by organizations to reduce their product loss, anticipate their customer's needs, and increase revenue. Of course, that also requires that companies invest in better supply chain management technologies. Technology is key to keeping up with an ever changing, global marketplace. For more information about optimizing your supply chain, contact the experts at AFFLINK.