Your business might put up with inaccurate weather forecasts, but would it really entertain inaccurate inventory forecasts? Absolutely no!
Whether you are a manufacturer, a wholesaler, or even retailer, you will need to know the exact point at which you need to replenish your inventory. Running out of stock can not only cause unnecessary loss of revenue, but it can also frustrate even your most loyal customers and possibly send them straight to your competitors. Similarly, it’s hard to imagine the damage overstocking can cause.
Luckily, the best inventory managers have found ways of perfecting their forecast skills for good. And you too can! Here’s how:
Know the Lead Time
When you place a purchase order with a manufacturer, the goods will take some time before being delivered to your warehouse – that’s the lead time. Different suppliers will have different lead times depending on several factors, including distance, means of transport, or other intervening events. You will need to have at least enough stock to see you through the lead time, however long it is. It’s outright dumb to wait until the last unit goes out of the door before calling your supplier.
Know the Lead Time Demand
Lead time demand is an estimate of the amount of goods you expect to sell during the lead time period. It’s determined as the product of the lead time and the average daily sales. That is,
Lead time demand = lead time × average daily sales
On top of the lead time demand, you will most likely need a few more units just in case the unexpected happens. That is called the safety stock. For instance, the supplier might take unusually long to deliver your order, or new customer referrals might lead to an unexpected bounce in sales. With experience, you will be able to come up with a realistic estimate of the safety stock.
Manual inventory records are undoubtedly cumbersome and difficult to use for forecasting purposes. That’s why you need to embrace technology. With inventory management software like DataQlick, you can automate transaction recording. That way, you will be able to know the amount of inventory left in real time and exactly when to place a purchase order. With the added convenience of a mobile inventory app, your business can operate optimally at all times.