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How to Master Inventory Forecasting

If you master these techniques, you will be able to cut your inventory costs and significantly improve your business revenue.

I regularly use inventory forecasting to predict upcoming demand for our products. If you master these techniques, you will be able to cut your inventory costs and significantly improve your business revenue. You will be able to get a good picture of new products your customers may be looking for so you can start making that product, or if you’re launching a new product you can see if it will meet customer demands or not.

Importance of Inventory Forecasting

1.      Minimize Stock-out

With inventory forecasting, you are able to predict future demand for each product. This means you can take better decisions to manage your stock level. I have an idea for how long it takes my products from order placement to reaching shelfs, then with demand in mind, I am able to calculate the level for restocking the products and by how many units. This way we don’t lose any sales due to stock-out.

2.      Reduce Cost

You will only order what you need, therefore your inventory holding costs are going to be lower. You will clear out space from not ordering unwanted products and can order more required products instead. This way you can also increase your revenue.

3.      Reduce waste

With inventory forecast you are able to see which items are selling and which are trending downwards. So you will not accumulate more non-selling and out of fashion items therefore waste is reduced and inventory space is freed.


1.      Check Demand for each product

The demand and trends for each of your products will vary greatly. You will need to generate graphs for easily understanding the sales demand for each product. Some will be in high demand overall, some low demand and some may have seasonal demand. You will need to analyze and make a report for each of the products in order to identify which products to stop ordering and which to order more to you’re your customer demands.

2.      Trends

Trends are great way to find out what customers are looking for. The takeaway is how long the trends going to last and are your customers looking for it. If they’re into it and you can deliver in time, it’s a great opportunity to exceed customer expectations.

3.      Seasons

Some products are seasonal and demands increase accordingly. You can manage seasonal inventory by checking out previous seasons data alongwith trends and customer demands. It is important to be ready to meet customer’s seasonal demands so you don’t lose any sales.

4.      Remove Outliers fromcalculations

Some shifts in product demands may be due to one-off events such as economic disruption, natural disasters or changes in laws of the region. You need to identify these outliers and remove these from the calculations so you can get accurate overall results.

5.      Accuracy

No matter how accurate your forecast is, you’ll not be able to achieve 100% accuracy. Find out the error percentage from previous forecasts and apply it to current forecast too. It’s a great way to understand customer demands but you should not depend on it totally. Sometimes instincts can be correct too. Do what feels right and always keep learning and updating.

6.      Adjust with Time

As time goes on, you will collect new data which needs to be used in forecasts. It is easier to predict customer demand for next month as opposed to next year. Therefore keep updating the forecast to reach higher accuracy and increasing your revenue.