What's your go-to inventory forecasting technique?

1 Historical demand

One of the simplest and most widely used inventory forecasting techniques is based on historical demand. This means using your past sales data to predict your future demand, based on the assumption that your demand patterns will remain consistent over time. Historical demand forecasting can be done with various methods, such as moving averages, exponential smoothing, or trend analysis. The advantage of this technique is that it is easy to implement and understand, and it works well for stable and predictable demand. The disadvantage is that it does not account for external factors, such as seasonality, promotions, or market changes, that can affect your demand.

3 Qualitative methods

A third inventory forecasting technique is based on qualitative methods. This means using subjective and non-numerical sources of information, such as expert opinions, customer surveys, market research, or intuition, to estimate your future demand. Qualitative methods can help you incorporate insights and perspectives that are not available or measurable in your data, and deal with uncertainty and ambiguity. The advantage of this technique is that it can be useful for new products, emerging markets, or innovative scenarios, where historical or causal data is not available or reliable. The disadvantage is that it can be biased, inconsistent, or inaccurate, depending on the quality and credibility of the sources.

4 Hybrid methods

A fourth inventory forecasting technique is based on hybrid methods. This means combining two or more of the above techniques, or using different techniques for different segments of your inventory, to leverage the strengths and mitigate the weaknesses of each technique. Hybrid methods can help you achieve a more balanced and robust forecast, that reflects both your data and your judgment, and that adapts to different levels of demand variability and complexity. The advantage of this technique is that it can increase the flexibility and performance of your inventory forecasting process. The disadvantage is that it can be more complex and costly to implement and manage, and it may require more coordination and communication among different stakeholders.

5 How to choose your go-to technique

When selecting an inventory forecasting technique, there isn't a one-size-fits-all solution. The approach that works best for you depends on factors such as your industry, product, market, data availability, and forecasting objectives. To narrow down your options and choose the right technique, ask yourself questions such as: How stable and predictable is your demand? How sensitive is your demand to external factors? How much data and expertise do you have to support your forecasting? How accurate and timely do you need your forecasts to be? And how much risk and uncertainty are you willing to accept in your forecasts? Remember, inventory forecasting is an ongoing process. You should monitor your forecasts, evaluate their accuracy, and update them as needed. Be prepared to adjust your technique as business and market conditions change.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?