Explained Inventory Forecasting with Its Benefits & Best Practices

Inventory Forecasting

Inventory is crucial for business and inventory management is essential for effective handling of inventory. If an inventory is not taken seriously then it can hurt your business badly. In order to grow your business inventory forecasting is essential.

It can do the magic for organizations if this move is made efficiently and effectively. What exactly is inventory forecasting is, how it can be beneficial for your business! You will learn in this blog.

What Is Inventory Forecasting?

Inventory forecasting is also known as demand planning. Inventory forecasting is the phenomenon of calculating the required inventory for the future so that each customer's need can be fulfilled.

For inventory forecasting, your calculations must be accurate otherwise inventory forecasting will be not effective and due to this business may suffer.

Inventory forecasting allows you to predict how much inventory you can sell in a specific period of time. For that objective data of inventory consumption, inventory sales, and inventory purchase records are used.

Again, accuracy is a very important factor for inventory forecasting. Moreover, you can get an extra edge if you have the capability to understand customer demand in terms of inventory forecasting.

According to Transparency Market Research,  “The global demand planning solutions market is expected to cross a market value of US$ 14.5 Bn by the end of 2030.” This statistic shows how powerful inventory forecasting is becoming & nowadays it is used as one of the important tools for growing a business.

Also Read: About Inventory Reports & How It's Useful in Your Business?

What Are the Advantages of Using Inventory Forecasting Techniques?

There are several advantages of using inventory forecasting techniques:

Advantages of Using Inventory Forecasting Techniques

1. Avoid Stock Out

One of the most basic advantages of inventory forecasting is that you can easily avoid the stock-out issue. Inventory forecasting is very beneficial in inventory management.

Stock-out means loss of potential revenue generation. With the inventory forecasting assistance, you can know when stock will be finished & when to reorder stock.

2. Cost-Saving

Inventory forecasting saves you from unnecessary spending on inventory. It allows you to order inventory in the right amount at the right time neither too much nor too little. It means less money is spent on inventory and ordering the new stock when stock is about to finish.

Your inventory holding cost will be minimized and your storage space will be decreased. These factors will be helpful to you and save you from unnecessary expenses.

3. Reduced Inventory Expenses

Inventory forecasting lets you know which is your best-selling product and which is not selling. When you have these types of information you can make an informed decision, or you can plan to improve your products.

With marketing and promotion, you can increase sales of these products by giving some offers or discounts.

4. Better Planning

Inventory forecasting allows a business to plan for upcoming events or festivals or seasons in which they can increase their sales number. When sales number will increase obviously more revenue will be generated and profit as well.

You can track trends that will also help in growing business. With detailed planning, you get a better vision of business & efficient management of the supply chain.

What Are the Best Inventory Forecasting Practices?

Best inventory forecasting practices are discussed below:

Best Inventory Forecasting Practices
Also Read: What Are the Various Strategies to Improve Inventory Management?

1. Ensure Data Accuracy

Several organizations do not give proper attention to the data they forget data plays a crucial role when you want to evolve your business. When you ignore the power of data it becomes a problem in the future it means you cannot use it in the future.

That is why data should be complete and accurate as well. In retail organizations, it becomes more important. As they say,  “data is the key to business growth”.

2. Future Estimation & Planning

Having an idea of what is coming gives you valuable time. It will assist you with figuring out what number of items you need for your stock.

Likewise, you can note down special times of the year and the extraordinary days where the business will be heavier than expected.

Now and again the business will back off or increase. You can without much of a stretch foresee your stock administration from the earlier year's notes.

3. Utilize Efficient Software

If you want to predict a precise inventory forecast then you must have accurate data and for that, you need effective and efficient inventory management software.

It can help your organization in several ways for instance you will retrieve information in real-time, and you will be always aware of the inventory you have in hand. Furthermore, it will also save you from out-of-stock or over-stock issues.

4. Collaborate with Other Teams

Inventory forecasting is not a one-man job although you may have all tools still it is not easy. For effective inventory forecasting, you need to work collaboratively with other teams.

As all teams can provide different aspects and provide input to improve efficiency.

What Are the Various Types of Inventory Forecasting?

Various types of forecasting are given below:

1. Quantitative Forecasting

Lots of organizations considered quantitative forecasting more precise than qualitative forecasting alone. Quantitative forecasting utilizes historical sales information. The more historical data and information you have the more accurately predict demand.

It is effective for a business that is already in the industry for the last few years, and they have accurate data as well. Quantitative forecasting works on simple philosophy  “more data means more accurate forecasting”.

2. Qualitative Forecasting

When organizations do not have accurate data then they can directly contact the potential customer & ask for their feedback.

For research and understanding the market, you need quality data and information which you can get only when you know your customers.

This type of inventory forecasting is an effective technique for the organization which is new in the industry.

3. Trend Forecasting

Trends keep changing and with that demands also keep changing. Therefore, for a business, it is important that they understand trends quickly so that they can take advantage of them.

For instance, summer clothing and winter clothing are different. For this purpose, organizations can use data in order to understand what customers want & where they are spending time most of the time on your website.

4. Inventory-Related Survey

Surveys can be effective in order to understand the mind of the customer. You can put questions related to your business to get answers.

If you know your customer, you will be leading always in business with other competitors. Surveys are an effective strategy for startups or businesses who are looking for launching some new kind of product.


Inventory forecasting can be very beneficial for business especially if you want to take your business to another level. It helps in inventory optimization. You can use automated software such as inventory management software for inventory forecasting.

This software ensures that data is accurate, efficient, and complete. Stock shall be neither too much nor too little, this software helps in striking the difference. The inventory management software also assists in setting a re-order point.

Also Read: What Are the Benefits & Best Practices for Inventory Planning?

Frequently Asked Questions (FAQs)

1. What are the factors included in the inventory forecast formula?

For inventory forecasting there are several factors such as inventory purchase and sales history, reorder point, safety stock, average lead time.

2. What is the difference between inventory forecasting and replenishment?

Several people use inventory forecasting and replenishment in one place or another. Both have similarities and differences as well.

The similarity is that both are used in sales history & the difference is Inventor forecasting enables you to calculate the amount for a particular period. Replenishment is the stock needed to meet stock gauges dependent on inventory objectives, supply, and demand.

3. How inventory management helps in setting a re-order point?

Inventory management helps in setting a reorder point for this purpose previous data is utilized. Previous inventory orders purchase and sales help in finding out the re-order point. This software automates the process, and no one needs to check manually.

Whenever inventory is below the defined inventory level it will alert the team member and the responsible person will initiate the stock refilling process.

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