Forecasts: A Powerful Inventory Management Tool, But Not a Fortune Teller

Managing your inventory is a critical factor for business success and can be very hard to plan for in many scenarios. For instance, you may want to create a high-quality forecast that gauges how much inventory you are likely to need and use in the future. However, it is always possible that this forecast may be inaccurate and that you may end up suffering financially as a result.

As a result, it is crucial to understand why forecasting is not always enough for good inventory optimization. Though this process can provide you with many benefits, there are issues that you need to grasp and prepare for when creating a plan entirely. Thankfully, this process has become a lot more streamlined and efficient, meaning you can cut down on many errors and guesswork.

Forecasting is Not Always Enough

A more significant number of companies create what is known as a forecast model to gauge how much inventory that they are going to need. This step is a very beneficial one because it makes an easy-to-understand model that you can share with many people in your company. However, forecasting does have limitations that need to be fully understood, such as:

• Being based on models of data that may not be accurate in the future
• Limited understanding of various outdated models of prediction
• Sudden fluctuations in the market based on emergency scenarios
• Errors in calculation caused by poor human understanding
• Lack of proper understanding of the model used to forecast
• Natural inaccuracies that occur with any modeling scenario
• Intermittent demand errors caused by stocking errors
• Supply chain failures caused by acts of God

All of these errors plague most forecast models and decrease their efficiency. These factors don’t mean that you shouldn’t produce a model for inventory management. Not at all: a good forecast can give you a good idea of what to expect. You just need to make sure that you don’t rely on it too much, as adherence to this type of plan is likely to bite you in the “you know where” if you stick to it too blindly.

Ways to Be More Accurate

Producing a streamlined and efficient inventory analysis plan requires you to understand a pretty broad range of possibilities. For instance, you need to pay attention to many factors within your control to ensure that those who are not don’t strike you. That’s a good golden rule for this process: always work off what you know instead of what you do not know.

First of all, don’t rely exclusively on your forecast to make decisions. It would be best to use it as a guide and a suggestion, not as a Crystal Ball. Telling the future with significant accuracy levels in the sales field is a fool’s errand: any number of things could go wrong. As a result, it is vital to create an emergency plan that takes into account as many elements of these potential problems as possible, including:

• Always keep a little more inventory than you need just in case you get a high demand
• Choose a handful of various supply chain management companies to avoid bottlenecks
• Stagger your deliveries to make sure that everything doesn’t show up at once

This type of emergency plan will ensure that you don’t get caught in a rough situation, one in which you feel out of control and which takes you out of your success as a business. Don’t forget – you can maximize your success by creating a handful of different plans and optimization strategies that go into effect if your initial forecast for your sales and inventory is off in any way.