With the rise of technology the e-commerce industry has expanded the online platform; therefore, maintaining an inventory to fulfill consumer demand whenever orders are placed becomes more complicated. With numerous channels to sell on, it becomes difficult to track all the data, and the capability to sift through sales and financial data and estimate consumer trends becomes a challenging task. Therefore, the need arises for robust demand forecasting software that can consider several factors that influence demand and implement complex algorithms to forecast demand accurately.
Let’s first understand: What is Demand Forecasting?
Demand forecasting is necessary for every retail business that maintains an inventory. Retail businesses need to keep track of the demand in the upcoming time and stock their inventory at the optimal level.
Demand forecasting is the science of estimating the probable demand for a service or product in the future for a certain period. This forecast depends on a blend of past consumer behavior patterns and current trends. It is not just guessing but a careful estimation framed scientifically by considering several factors. It is a data analytics technique that informs how many items should be ordered and how much money should be invested to avoid stock wastage.
It is essential for businesses wanting to expand into new avenues and launch new products, but many businesses still struggle to forecast demand accurately. Demand forecasting should be integrated into the replenishment process for effective order fulfillment.
Accurate demand forecasting allows you to maintain an optimal stock and not hold too much inventory of slow-moving products that ultimately result in wastage. Stocking the items in demand is necessary so orders can be fulfilled quickly. By fixing a reorder point while considering the supplier lead time.
Companies can consider various methods of demand planning and forecasting for predicting demand.
Methods of Demand Forecasting
There are no simple or easy methods of forecasting demand, and scientific formulas and proper estimation are required for accurately predicting the demand for a service. Let us have a look at the different demand forecasting methods.
- Planning Inventory Through Demand Types
The demand for different products varies differently and you can understand this by examining the historical sales data for different products. Some products have a consistent demand throughout whereas some products have an unpredicted demand. Additionally, the demand types keep changing throughout the product lifecycle from market entry to maturity and decline. You should choose the kind of algorithm carefully for forecasting base demand accurately.
- Incorporate Demand Trends
The demand for inventory products fluctuates with time, new technologies replace the old ones. Economic and legal aspects also influence demand. Goods follow demand trends while moving through the product cycle. In the growth phase, the demand is high, and in the decline phase, the demand is low. You should look for such trends in demand forecasting and adjust the inventory forecasts.
- Seasonal Demand Forecasting
Almost every business should be ready for seasonal demand fluctuations for some of their products. Seasonal weather patterns and annual traditions have a huge influence on demand. You should be able to comprehend this demand as they impact the customer purchasing habits, and production levels, and would assist you to avail benefits of high demand and plan wisely for troughs. Also, it is better to keep the seasonal demand separate from base demand calculations.
- Inventory Forecasting Outliers
Unusual demand can be the outcome of large one-time orders, sales promotions, employee strikes or unanticipated events. You should be careful enough to identify demand outliers as they impact the precision of the forecast. Any deviation from the normal needs to be detected and you should decide whether it needs to be included in the forecast calculations.
- Qualitative Forecasting Method
Qualitative demand forecasting considers external market factors and future events such as competitor activity and sales promotions. It also involves taking opinions from the sales team and talking to suppliers and customers about their upcoming orders and thoughts. This method is useful when the demand is not constant and when you do not have enough historical data as with newly launched products.
- Demand Forecasting Reviews and Periods
The period selected for forecasting also influences the accuracy. A forecast for the coming weeks would be more accurate than a forecast for 12 months. If there are greater fluctuations, you should review your forecasts more frequently as compared to slow moving products.
- Comprehend Accuracy
Demand forecasts are never 100% accurate. So, if you keep track of the level of error in the past, you can incoprporate the data in the future forecasts and identify the level of inaccuracy so that the inventory can be stocked accurately to meet unanticipated demand.
Why the need for a Demand Forecasting Software?
Demand forecasting is a challenging task, if you need to track every factor, across mutliple channels and for every SKU unit. Inventory forecasting requires an insight into the number of products in the warehouse, so that the future orders along all the channels can be fulfilled in time. This is where a Demand forecasting software can assist you in providing a quick and correct means of forecasting regardless of the complexity of the demand. It reduces the mannual labor and time required for a person to process such large sheets of data and then arrive at a conclusion.
A demand forecasting system will accommodate more advanced demand forecasting requirements than enterprise resource planning systems (ERP) or warehouse management systems (WMS). Thus, investing in a proper demand forecasting software is beneficial for businesses.
About Fountain9
Fountain9 is a company that specializes in generating accurate forecasts with its demand forecasting software, Kronoscope. It is an AI-based software that analyzes huge datasets of factors influencing demand and accurately predicts demand. It considers nine unique factors influencing demand, and inventory can be optimally stocked depending on these forecasts. With accurate forecasting, consumer demand can be satisfied at the right time, thereby increasing customer satisfaction.
