How Forecasting Impacts Inventory Turnover

Introduction

One of the hardest challenges for manufacturers is managing inventory turnover. No one wants to have their capital overinvested in inventory, to be forced to sell items at a discount, or to waste precious storage space on undesired items. Forecasting is meant to help businesses plan for the future, but can it really help with inventory turnover? In this blog, we will go through how to use forecasting to manage your inventory and maximize profits.

Improve demand forecasting accuracy

If you anticipate demand for your items correctly, then it won’t be necessary to implement last-minute strategies to sell off overproduced inventory. Demand regularly fluctuates for products over time, with some fluctuations being relatively easy to predict while others are unexpected. Forecasting with your ERP is essential to ensure that you are producing the right amount of inventory to align with these changing demand levels. Using a modern ERP system, you can utilize statistical demand forecasting principles in these four steps:

1. Factor in product-specific factors, including your item’s demand type and position in its product life cycle (read how product life cycle effects inventory turnover)
2. Identify if the item has seasonal demand patterns or market trends that impact it
3. Refine your forecasting parameters to reflect volatility in the market (if the market is volatile, focus on shorter time periods for more accurate results and reforecast if a major market shift occurs)
4. Allow for qualitative demand insights such as adjusting for promotions or competitor activity

When you properly account for these components, forecasting has numerous benefits. You can ensure that you have the right stock levels of the right products so that your team can make sales. Your business will have more capital from cutting out unnecessary product costs and overstocking. Distribution and customer management will be simpler to execute and surpass outside expectations.

In contrast, mistakes with your forecasting tool can cost your company significant losses. Ensure your forecasting will offer you the best predications possible by working with an ERP consultant on your setup. At Datix, we learn the specific needs of each of our clients to make sure they are getting the most out of their solution as part of our business-first approach. Find out what Datix can do for you.

Wrap Up

Forecasting is an excellent tool to manage inventory and see what is possible for your organization, but it should be part of a larger strategy. To merge your software tools and your business processes, work with a nonbiased consultant like Datix.

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