The world of ecommerce is becoming increasingly complex as more and more people begin to buy and sell goods online. The more avenues there are to sell on, the harder it becomes to track all of that data to make an accurate demand forecast. As the channels companies can sell through continue to diversify, the ability to parse through sales data and predict market trends using advanced technologies like automation and artificial intelligence (AI) will quickly become an invaluable resource.
Demand forecasting helps decision-making by informing how many units need to be ordered, preventing companies from overstocking on inventory that won't sell. It is a powerful tool for businesses expanding into new territories, new products, and demand fluctuations. However, many companies still struggle to correctly factor demand into their replenishment process.
When companies have an accurate demand forecast, it becomes much easier for the business to anticipate future cash flow requirements. Often, peak season merchandise must be paid for in an off-peak period when capital is scarce. An accurate forecast can prevent placing undue pressure on a business at an inopportune time.
Keep reading to learn how it all works and what tools and information you need to leverage demand forecasting in your business.
Long-term demand forecasting is valuable for nearly any business. Projections for profit margins, expenditure, inventory turnover, risk assessment, and more are often essential for business planners at all levels and across all departments of an organization. Forecasting allows key stakeholders to plan for multiple business functions, including future labor needs, inventory costs, advertisement campaigns, and individual regional sales projections.
Unsurprisingly, the amount of data required for the demand forecasting process can be overwhelming without dedicated software. Luckily, forecast accuracy improves significantly with the right tools such as order management systems (OMS) and inventory management software. With an integrated ecommerce and/or fulfillment technology stack, you can track in-depth inventory information like stock levels and actual sales velocity for each SKU, allowing you to plan for the future and allocate the right resources to the right channels and warehouses.
Of course, gathering your data is only half the battle. As McKinsey points out, you must also act on that data by incorporating it into your business model, meaning you’ll need to foster a data-driven culture within your organization. If demand forecasting is new to you, brainstorm among your staff how best to use the data you’ve gained from your research. Staff training or hiring a consultant can pay dividends when first implementing demand forecasting, though sometimes it's as simple as carefully strategizing among your internal staff.
Many tools and software programs facilitate demand forecasting. To find the right solution for your business, consider your needs, the specific capabilities that will help you achieve your goals, and whether you have the appropriate internal resources for demand forecasting.
Take time to carefully document your sales and demand trends in a detailed specification document. Consider the past and current state of your inventory management and supply chain management: what were some recent issues, and what do you need to mitigate them in the future? Regarding future performance, are there areas of your business that you feel you lack insight into? What constraints in terms of budget and project lifecycle might emerge when considering the right tools for forecasting
Once you know which areas you want to focus on, consider the software features you’ll need to facilitate your demand planning. Some common features include:
Choosing the right ecommerce operations software is an important decision that can make a massive difference in how you optimize your inventory, manage your cash flow, plan for the future, and (ideally) grow your bottom line. Your best bet is to create a team of internal subject matter experts and power users to participate in selecting any new demand forecasting solution or creating new procedures. This will help your team adopt the new solution faster and manage internal change and expectations.
To get the best results, ensure your staff has the training, knowledge, and technical capabilities to not only use your demand forecasting software but also know why they should use it. Budgeting for a short-term decline in productivity while your team undergoes training will help ensure long-term adoption and success while maximizing the benefits of the new solution.
If you're using multiple, separate tools to meet for demand planning, you may need certain staff with specific technical skills to keep all your systems in sync. You’ll also want to keep an eye on how accurately your team can share, merge, or compare data from different systems. Alternatively, you may find that a standalone, all-in-one solution meets your business needs better than a series of individual tools.
Improving your demand forecasting is a proven way to increase profits, mitigate unnecessary costs, and optimize your supply chain—especially when you have the right tools. Extensiv’s complete solutions for brands can bring your ecommerce business to the next level.
Extensiv’s cloud-based software for retailers, ecommerce merchants, and omnichannel brands provides robust, end-to-end data analytics and reporting features along with demand planning capabilities to improve your inventory flow and work smarter, not harder. Using historical sales data, you can calculate how many units you need to reorder within a certain time period and the exact date a purchase order should be issued—and you can even factor in projected growth to these calculations on a SKU-by-SKU basis. And that’s not the end; our order management system then automatically creates purchase orders with recommended reorder quantities, streamlining your replenishment process tailored to your precise demand forecasts.
Want to learn more about Extensiv’s platform? Request a demo today!