Inventory forecasting — also known as demand planning — is the practice of using past data, trends and known upcoming events to predict needed inventory levels for a future period. Forecasting is more than just setting a reorder point — it’s using data analysis to identify patterns and trends to adapt to dynamic conditions and meet customer demand.
In inventory forecasting we calculate the amount of different types of inventory for future period. It helps you keep enough product on hand while not wasting storage space on unnecessary products. Many factors can affect demand for your product. Some of them are external, such as a storm affecting shipping times, and some are internal — such as a marketing campaign that drives up demand.
Types of Inventory forecasting
There are different types of inventory forecasting methods are used.
Trend Forecasting
Trends are changes in demand for a product over time. This method gives the possible patterns and excludes seasonal effects and irregularities using past sales and growth data.
Graphical Forecasting
The trend forecasting data can be represented in graphs and images. Some forecasters prefer the graphical method because of its visual nature and insights available.
Qualitative Forecasting
When they lack historical data, some companies go straight to the source: their customers. Qualitative forecasting often involves complex data collection, such as focus groups and market research. Forecasters then flesh out models from this type of data.
Quantitative Forecasting
Considered more accurate than qualitative research alone, quantitative forecasting uses past numerical data. The more data a company has, the more precise the forecast usually is.
One example of quantitative forecasting is time-series forecasting, which uses temporal quantitative data to make a model to predict future trends.