The importance of sales forecasting in inventory management
Inventory forecasting is a store-specific process that takes into account geographic location, sales space and merchandising. Forecasting stock levels means anticipating future demand for a service or product. Because storage represents a significant cost, companies are turning to machine learning to analyze customer behavior and improve forecasting and inventory management processes.
But how does sales forecasting play into inventory optimization? Whether it's overstock, out-of-stock, customer dissatisfaction or lead time and cost, we'll see why sales forecasting is important for inventory optimization.
Eliminate overstock with sales forecasting software
For a specialized store or a mass distribution store, overstocking has become a real issue. The storage of a too great number of products generates many additional costs for a company: purchase cost, storage cost, destruction cost, management cost, etc.
Financial and human risks related to overstock
The overstock corresponds to a too high level of stock for a reference or several references. Indeed, a bad stock management can lead to a too important stock of goods. The consequences are financial and human for the store.
First of all, the risks linked to perishable goods can lead to dry losses for the company. Indeed, if perishable goods are stored for too long and are not sold, they will have to be destroyed. Additional human resources will then have to be mobilized, which generates a new financial cost.
Secondly, overstocking mobilizes additional storage space. In warehouse management, every square meter is optimized to minimize storage costs. Products that are stored for too long can take the place of new products that the company would have liked to launch.
Third, while waiting for orders, items must be protected against theft in secure storage areas. Some items must also be protected from the elements, such as rain, cold or heat.
Forecasting sales and calculating a proper stock
To avoid these financial risks, there is an essential solution: sales forecasting. Indeed, thanks to data analysis, sales forecasting allows to calculate and model future sales. This means that companies can know in advance what customers will buy, how much and at what price.
In addition, sales forecasting determines sales by taking into account the geographical location of each store. Thus, each store can adapt its inventory management to avoid overstocking and to gain in performance and productivity.
Avoid stock-outs with reliable sales forecasts
Sales forecasts are tools that predict the consumption of each product in a particular store. Indeed, thanks to an analysis of internal and external data, the predictive intelligence platform provides very precise information about the average consumption of a product. Stores can therefore adapt their stock management and avoid any stock shortage.
Out of stock, loss of turnover and customer dissatisfaction
Out of stock can have financial consequences for a company. But it also generates customer dissatisfaction. In an increasingly competitive market, each company must stand out from the others by ensuring, among other things, that all its products are available in stock.
An item that is out of stock is an item that cannot be sold. It is therefore a loss of turnover which entails two additional costs:
- higher purchase price for emergency replenishment;
- additional sales that will not be realized.
Indeed, some products offered in the stores are purchase triggers. This means that these are the products that bring customers into the store. If these products are no longer available on the shelf, customers do not come to the store and do not buy anything.
Optimize inventory management with reliable sales forecasts
Companies that have an efficient sales forecast are companies that avoid stock-outs. The optimization of inventory management necessarily involves the implementation of indicators related to inventory:
- the inventory turnover rate;
- the out-of-stock rate;
- the safety stock;
- the replenishment threshold, also called alert stock;
- the minimum stock;
- the maximum stock;
But inventory management also includes sales forecasting. A sales forecasting tool allows you to know in real time the state of the stock as well as the customers' behavior in relation to the different products. Thus, it is possible to adapt the stock level of each product in order to avoid having too many or too few products in stock. Thanks to the sales forecast, a company can anticipate and forecast the turnover that will be realized on a particular day or over a given period.
Sales forecasting and reduction of purchase price and procurement time
To reduce inventory and inventory management costs, stores use sales forecasting. Indeed, sales forecasting is an efficient method to determine future sales according to the time of the year, seasonality, weather, local economic context, promotional offers, etc. Thus, the different points of sale trigger the production or delivery of products at the best time and at the best price.
Better commercial negotiation regarding the purchase price of products
The predictive intelligence platform is able to determine reliable forecasts in real time for all products in a store or several stores. The quantities needed in stock are therefore known in advance. Thus, for each period of the year, the stores know how much stock they need per reference. This allows them to better negotiate purchasing costs, as they are not in a hurry to run out of stock.
Launch of production according to the product replenishment threshold
Knowing the level of future sales of a product gives stores the ability to launch product manufacturing at the right time. It is no longer a question of launching production to deal with a stock shortage. On the contrary, the manufacturing of certain products can be triggered as soon as the stock level reaches the replenishment threshold, or alert stock.
Control of the delivery time of the different articles
Finally, controlling the quantities sold means controlling the delivery time. Indeed, supply orders are placed early enough to avoid any delay in delivery. This replenishment management makes it possible to deal with any unforeseen event related to the delivery. In store, customers will be able to have the entire assortment at their disposal, under any circumstances.
To conclude, sales forecasting is an infallible way to optimize stocks and avoid stock-outs, overstock as well as additional costs related to manufacturing and delivery.
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