Effective inventory analysis and the demand predictions that arise from it can make or break a business.
Not only does inventory analysis and demand prediction help preserve capital for more efficient purposes, but also they help reveal opportunities and chances for growth.
In general, there are 8 major inventory analysis and demand prediction strategies that businesses use to analyze the present in order to predict the future.
From an analysis of demand to software, and any combination of the two, here are eight major inventory analysis and demand prediction strategies:
A popular method for inventory analysis and demand prediction is something called demand types. In its simplest form, this is an analysis of the pattern of demand for a particular item over time. The shape this demand makes on the graph will determine the “demand-type” for the product under analysis such as an X demand-type with sharp ups-and-downs, a Y demand-type featuring consistent demand, and others.
As the name implies, trends look at a product from the standpoint of growth in terms of a full product cycle. This examines whether the product in question is a commodity, staple, fad, seasonal, disruptor, or other type of product.
A seasonal analysis for demand prediction looks at historical sales of inventory during specific times of the year in order to best predict the demand for the coming season. Relying largely upon historical data, seasonality also applies to goods and services that are only offered or only in large supply during certain times of the year as well.
Qualitative data seeks to harmonize various data points to produce a holistic view of where future demand is heading. Some points that may be included in the analysis are future events, competitor activity, and general market trends.
“Real Demand” Analysis
Demand can be impacted by what is known as “outlier” events that skew the data from which you attempt to make future projections. “Real demand” analysis attempts to remove these outliers in order to produce a clean set of data based on actual, consistent trends.
Forecasting accuracy is an attempt to quantify various projections in a mathematical format in order to make the most optimal decision for your business’s future. The advantage here is that a range of data points and projections can be made and synthesized. Additionally, a whole range of events and impacts can be considered during this analysis.
Demand Forecasting Periods
The general rule is that the shorter your period of projection, the more likely it is to be accurate. In other words, predicting what will happen over the next month tends to be more correct than a prediction for the next 12 months. Setting regular forecasting periods, in theory, should increase a firm’s ability to accurately predict demand.
Software is increasingly using a range of the above strategies to analyze current inventory as well as make predictions about future demand. These tend to run in the categories of inventory optimization software and statistical demand forecasting systems.