Want to stop losing money on bad inventory decisions?
If you think demand planning is working well for your business then keep doing what you’re doing.
Most companies think that. They’ve got spreadsheets upon spreadsheets, some historical data points they care about, maybe an ERP humming away quietly in the background.
They think they’ve got demand planning figured out.
But …
They don’t.
And they’re losing money on lost sales, excess stock, and missed opportunities as a result.
Luckily, predictive inventory planning isn’t hard. Anyone can start using predictive forecasting techniques to drastically improve their business.
Let’s dive in…
What you’ll pick up:
- Why most businesses fail at demand planning
- How bad calls about demand really cost your business
- A simple explanation of predictive inventory planning
- 5 actionable ways to start getting demand planning right
Why Most Businesses Fail at Demand Planning
Here’s the hard truth we all need to hear…
Demand planning fails because businesses use outdated methods.
Too many businesses rely on dusty old spreadsheets and ‘gut feel’ to forecast what customers will buy next month. Guess what?
It doesn’t work.
In fact, research from McKinsey showed that AI-driven forecasting techniques could improve traditional error rates by between 20 to 50%. Those are big numbers. Your gut feels like it knows what it’s doing… but the numbers don’t lie.
The real problem is that most companies see demand planning as a set-it-and-forget-it task. Forecasts are made at the start of a quarter, then essentially ignored while “real life” happens.
The problem is, “real life” is constantly changing.
Customer behaviors shift. Markets change. Supply chains get disrupted.
When the factors your forecasts are based on change (and they will!) those forecasts render null and void. Which means businesses are stuck using outdated information to make important decisions about inventory and purchasing.
By taking an inventory forecasting approach to predictive demand, businesses can go from reacting to events to planning for them. The difference between reacting and being proactive is the difference between constantly putting out fires and investing your time and money wisely.
The Real Cost of Getting It Wrong
Mistakes in demand planning don’t just hurt a little.
Bad demand forecasting is one of the two root causes of two incredibly expensive problems.
The first problem is overstocking. When you forecast too much demand you tie up cash in excess stock that won’t sell.
The second issue is called a stockout. Whenever you forecast too little and sell out of a product, you’re leaving money on the table. Not to mention annoying your customers.
Both of these situations are bad. Stockouts can be especially painful though as customers who can’t find the product they want will buy from your competitor. And they may never come back.
Research from Opensend revealed that close to 43% of small businesses either had no inventory tracking solution or were stuck using 100% manual inventory systems. That’s almost half of all small businesses that are basically guessing when it comes to how much inventory they have or need.
Yikes.
Beyond the obvious costs of purchasing excess inventory or missing out on sales, poor demand planning has a ripple effect of negative consequences.
Warehouse storage costs go up to make room for excess stock. Cash flow slows to a trickle as money is tied up in goods that aren’t selling. Customers get frustrated when orders are delayed or cancelled. Team members are frustrated they have to work in reactive instead of proactive environments.
Poor demand planning leads to lost revenue. A business that doesn’t plan for demand effectively cannot scale effectively.
How Predictive Inventory Planning Works
Predictive inventory planning sounds fancy. So what does it actually mean?
It’s not as complex as you might think. At its core, predictive inventory planning is simply using data (past and present) to make better informed decisions about future demand.
Instead of basing forecasts on last year’s sales and hoping for the best… Predictive inventory planning takes into account sales trends alongside dozens of other factors. Like seasonality, market changes, supplier lead times, etc.
When machine learning and AI come into play, forecasting becomes even more powerful. Computers can analyze far more data than humans ever could and identify patterns beyond our comprehension. And they don’t sleep. So this tech can process real-time data 24/7 and adjust forecasts on the fly.
The end result?
Businesses who used AI predictive forecasting report significantly less stockouts and excess inventory. They’re not guessing about demand. They know it.
Pretty neat stuff right? And the best part is it’s not exclusive to big enterprise companies like it used to be. Predictive inventory planning is accessible to businesses of all sizes these days.
5x Fixes to Get Demand Planning Right
Ok you’re ready to improve demand planning forever. Here are five strategies to get you there.
Stop trusting spreadsheets as your only source of truth
Spreadsheets are helpful. But when it comes to managing demand planning for dozens, hundreds, or thousands of SKUs… Sheets aren’t going to cut it.
Information gets messy. Formulas break. And there’s no way to sync sheet data to what’s actually going on in real time.
That’s why any adequate inventory management system comes equipped with powerful demand planning software. Make the jump and stop manually managing forecasts on spreadsheets alone.
Layer on as many data points as you can
If there’s one mistake most businesses make with demand planning, it’s not using enough data.
Looking at past sales is nice but it won’t give you the full picture. Integrate external data like market changes, supplier updates, sales and marketing pipeline info, etc.
The more info your demand planning software has to consider, the smarter your forecasts will be.
Review forecasts often
This old sales saying applies to demand planning too. Just because you create a forecast doesn’t mean it should remain static until the end of a time period.
Set a recurring schedule to review forecasts weekly or bi-weekly. That way you’re always working with the most up-to-date information about market conditions and can pivot when needed.
Break down data silos
This one cannot be stressed enough.
If your sales, marketing, operations, and finance teams are not all collaborating and sharing information, demand planning will always fall short.
Each department has access to valuable information that can contribute to better demand planning. Make sure they’re talking to each other.
Start with a few SKUs and scale your successes
Trying to improve your entire demand planning process across all products at once can be overwhelming. Nobody likes to fail.
Instead, cherry pick one category or product line and start there. See the impact predictive planning has on those SKUs and you can scale your way up to the whole business.
Starting small will help you learn what works and avoid putting your entire business on the line.
Tying It All Together
Demand planning shouldn’t be a shot in the dark. Traditional inventory management fails because it relies on outdated tools and forecasting techniques.
When internal departments don’t talk to each other and push out-of-date information, businesses are destined to make bad calls on inventory.
Those missed sales and excess inventory add up to lost money. Which leads to high costs and unhappy customers.
The solution? Use predictive inventory planning software to make smarter purchasing and stocking decisions. Here’s a quick recap:
- Don’t use spreadsheets as your only demand planning tool
- Gather information from every channel available to you
- Frequently review forecasts to account for changing market conditions
- Make sure every department is communicating with each other
- Start with a few SKUs and scale your successes
Your business will thank you. You’ll spend less time cancelling orders and fighting fires. And more time helping your business grow into its full potential.
And that’s a win all around.
