Demand forecasting is a necessity if you want to keep your parts inventory under control and boost your bottom line. An inability to forecast demand and/or just failing to do so can leave you with an inventory nightmare; good forecasting helps companies plan ahead to keep their inventory levels at their “sweet spot.”

Two tips for better forecasting:

Identify Seasonal Items

If you sell products with an obvious relationship to the time of year, such as snow blowers or Christmas ornaments, this step is fairly easy. Some businesses, however, may not realize that they sell products or services that do, in fact, have a seasonal aspect.

If, for example, you teach business strategy classes, or if you sell software that promotes efficiency but requires extensive employee training, you might find that your business drops off in the summer. Why is this? Because summer is the most common time for employee vacations and while your customers aren’t expecting their employees to “slack off” because it’s summer, they may put off buying new software until a time when all their employees are available for the training classes.

If you fail to identify seasonal items or services, your demand forecasting will suffer. Observing your past and present orders and identifying trends – such as that your order levels drop off in the summer – gives you the information you need to forecast correctly. If your demand forecasting doesn’t take all factors into account, your inventory levels will be too high during the dip in your product demand and too low at your peak selling times.

Use the Numbers and Patterns in Your Data … But Go Beyond Them Too

Basing your forecast on the number of sales from the previous year can be dangerous. Factors that occurred last year – bad weather or a new supplier – can make your demand appear lower than normal. Other factors, such as a competitor having temporary issues, can make your demand appear higher than normal.

Keep in mind that this year may not hold bad weather, new suppliers, or competitor failures. Whenever possible, keep records of such events and reference them when forecasting. Your sales and marketing department may have also been extremely effective last year, but if three of those employees left, you might want to consider that those departments might not be up to par this year. Your forecasting at that point should include not what they did last year but what their goals are for this year.

You can also forecast with more efficiency if you get a broader understanding of your market. Research the demographics of your target audience and learn their consumption habits. Are they baby boomers nearing retirement? Such a demographic is good news for your business if you are selling leisure products and bad news if you are selling products related to career advancement. A good understanding of your market’s demographic allows you to make long term predictions about demand trends.

Do you need help with demand forecasting and parts inventory control? Acumen Information Systems can help. Contact us today for more information.