When running a business, the importance of accurate inventory forecasting cannot be overstated. In times like now, when consumer demands and supply chains are changing rapidly, business owners have to be able to predict when dips and spikes in demand might occur and that is why inventory forecasting is so important.
Also called demand planning, inventory forecasting can simply be defined as the practice of using trends, past events and data, upcoming events, customer insights and other variables to be able to determine when demand for a product might spike so as to prepare for it.

When done right, inventory forecasting is a great tool that helps businesses to ensure that they have enough inventory to be able to meet the demands of their clients and make sure that they are not over-stocking or under-stocking on inventory.

Forecasting correctly involves a combination of statistical and quantitative data analysis, customer insights, company expertise and a little foresight into events that could trigger a drop or spike in future demand.

The benefits of this practice are immense. Every major business in the world that sells products practices some type of inventory forecasting because it ensures that they make as much profit as possible. Let us take a look at some of the many benefits of inventory forecasting.

Accurate Budgeting

One of the major benefits of inventory forecasting is that with the information you have gotten, you will be able to make an accurate budget for your business without overspending or under-spending on inventory.  You will not be able to make an accurate budget without first practicing accurate forecasting.

If you use the information you have gotten from looking at the past data, trends and customer insights, you will be able to create a master budget for your business, as well as other budgets like cash flow budget, production budget, labor budget, etc.                   

With accurate budgeting, you will be able to meet up with all your goals and objectives and be able to plan for the future. Inventory forecasting and budgeting go hand in hand. They are both very important to a business because they help you control and track your expenses so you can save as much money as possible.

Cost Savings

As I said earlier, when a business accurately predicts demand, it will be able to save costs that would be incurred if it didn’t. If you know when demand for your product is going to go up, you will be able to order only the exact number of products that you need.

For example, if you own a retail store that sells shoes and you practice accurate forecasting to know when the demand for your shoes go up, you will know how many units you need to buy. However, if you don’t forecast correctly, you might order too many shoes and end up incurring losses.

Accurately forecasting inventory can be the difference between generating a profit and ending up with mounds of unsold goods.  You can keep safety stock at a reasonable level if you can order the proper amount of inventory at the right time. This results in you having and far less unsold stock and you can use the money saved to re-invest into your business.

Tracking Overall Performance

Good inventory forecasting also helps businesses keep track of their overall performance. Assessing your overall performance every year is important because you need it to be able to know the areas where you can improve as a company.

With forecasting, you can compare and contrast the amount of sales you predicted you would get and the amount you actually got. You can find out where you went wrong and improve on it so you can get a larger profit next time. With forecasting, you can work on your business plan and if it fails, you will know the areas to improve and the adjustments to make your business plan better.

Forecasting really helps companies to make foolproof plans that get them the most amount of profit possible. It also helps to improve employee performance because you will be able to track which employee is doing better than others and can reward them which can motivate other employees to do better.

Improves Supply Chain Efficiency

Predicting how demand is going to go gives you the advantage of planning your supply chain to prepare for it. As said earlier, inventory forecasting accurately determines the amount of sales you are likely to make and when they will occur, and this allows you to plan all areas of your supply chain, including inventory management, manufacturing, warehousing, transportation and customer service.

You can anticipate significant spikes in demand and plan ahead to ensure you have enough materials to meet the demands of customers.

When you improve your supply chain through the data obtained from forecasting, your business will have a higher efficiency rate, improved quality control, you will be able to optimize shipping, you will have a reduced overhead cost and you will keep up with demand. Companies have benefited from being able to prepare for any fluctuation in price, fill orders on time, and avoid any unnecessary expenses.

Customer Satisfaction

Planning for an increase in demand helps businesses to keep up with the demands of customers and make them satisfied. Every business wants to make money and the only way to do that is to keep your customers happy, and that is where good inventory forecasting comes in.

If you are always able to meet demands, you will get a reputation as a reliable supplier and your customers will keep coming back. All the big companies know this and that is why they make use of demand planning.               

When customers are happy, the business booms because they would talk about your service with other people and get them to come as well. They can also rely on you to provide during emergencies when they need whatever product you are selling at a short notice. Building a relationship with buyers, and making them trust you is very important and it is made easily with inventory forecasting.


If you are a business owner and you haven’t been adopting good inventory forecasting, you should definitely work on doing so now. The benefits of this business practice are immense and it helps businesses to maximize profit. It is one of the most under-used business strategies despite showing great returns. With forecasting, you can prepare for the future and make sure you are always ahead of the game. 

Related Articles

Top Techniques And Best Practices For Ecommer

Now more than ever, the sales of products online have b...

A Complete Guide to An Inventory Audit

If you run a business, you will almost definitely compl...

How To Source Inventory For Your Ecommerce St

In the days of old, merchants embarked on long journeys...

4 Steps to Prevent Inventory Shrinkage

Most retailers will encounter the issue of inventory sh...

Leave a Comment