Growing sales? Check.
Expanding customer base? Check.
Products in stock? Hmm…
If you’ve ever struggled to accurately gauge how popular your products are, you're not alone. In fact, out-of-stock notifications grew by a whopping 172% in 2021.
While the massive surge in stockouts was partly due to supply chain disruptions, a lack of accurate demand planning on the part of retailers played a significant role.
And it’s not hard to understand why. Fast-moving market shifts, changes in consumer behavior, and chronic supply chain challenges are just some of the hurdles online retailers are forced to contend with while planning their inventory.
The good news is, when done correctly, demand planning can serve as a guiding light helping you deliver the right products, in the right quantities, at the right time.
If you’re looking for a way to stabilize your inventory levels and grow your sales, you’re in the right place. In this post, we’ll recap the demand forecasting basics and share tactics to help you improve your demand planning throughout every season and sales cycle.
Table of contents
- What is demand planning?
- Demand planning and forecasting can put you one step ahead
- How to use better demand planning methods to improve business results
- Inventory optimization: Go beyond demand forecasting software
Make stockouts a thing of the past. Learn how Flieber can help boost your forecast accuracy.
What is demand planning?
It’s no secret the world of ecommerce is becoming increasingly competitive.
With endless options at shoppers’ fingertips, it’s crucial to position your brand as the one that always has what they came for.
That’s where accurate demand planning can make the difference.
Demand Planning Definition
Demand planning is a type of predictive analysis that calculates the future demand for a product. Demand forecasts may use the following data points to generate predictions:
- A product’s past sales performance
- Market research and consumer behavior trends
- A competing products’ sales history
When done correctly, demand planning helps to not only stay in stock and increase sales, it also puts you in a position to make better decisions across the business.
With an accurate reading on product demand, you’ll be able to make high-ROI inventory purchases, scale new products faster, and enter new markets with confidence.
Ready to break free from stockouts and overstocks? Find out how Flieber makes it easy.
Demand planning and forecasting can put you one step ahead
The sales-draining drawbacks of inventory stockouts are well known. However, while chronic stockouts are absolutely a big drain on revenue, they’re only one part of the problem.
Overstock and deadstock are the other side of the problem, and can be a major drain on your capital and cash flow. Inaccurate forecasting can mean the difference between hitting the market successfully or tying up capital in products and storage.
The good news is, demand planning can help with all of these issues and more.
Consistently hit your biggest growth targets
An unfortunate example of forecasting failure is the 2001 supply chain fiasco experienced by titan brand, Nike.
In the aptly titled article for CFO.com, How Not to Spend $400 Million, reporter Craig Schneider details the cautionary tale of how Nike’s leadership spent nearly half a billion dollars implementing a three-part tech stack consisting of a customer relationship management (CRM) platform, enterprise resource planning (ERP) system, and a supply chain management system to help the brand continue its rapid growth.
At the time, the investment had seemed like a great idea. But Nike’s shiny new supply chain management system simply couldn’t handle the complexity of forecasting for multiple product variations, and it failed to align inventory with demand.
As a result, Nike ended up with overstocks of its less popular products and shortages of its best-sellers, resulting in a $100 million loss in Q3 that year.
Without a strong alignment between demand and inventory across the product portfolio, you stand to lose more than sales.
Product shortages can lead to missed targets and negative ripple effects on customer loyalty and brand reputation.
On the flip side, by syncing demand with inventory, you can achieve all your core targets across the business — from sales growth and margins to customer reviews and brand awareness.
Demand forecasting strengthens cash flow and working capital
Cash is king in every business, but that’s especially true in the modern game of ecommerce.
Healthy cash flow and working capital can help your brand access multiple advantages, including:
- Better terms with suppliers and 3PLs
- Increased marketing and ad budgets for top-performing products
- Reduced risk for new product launches
- Efficient launches on new sales channels
- Reduced risk for entering a new market or territory
All of these activities can have a major impact on your ability to scale and grow without the help of external funding.
Healthy cash flow also puts you in a better position to handle the unexpected.
For example, say one of your products goes viral and you don’t have enough liquid capital to purchase additional stock because your working capital is locked up in deadstock.
By using sophisticated demand forecasting methods to help prevent both stockouts and overstocks, you’ll increase your liquidity as a natural byproduct.
Flieber’s forecasting takes into account previous stockouts. Our AI-driven algorithms create forecasts that account for market fluctuations, price changes and sales outliers, helping to automatically identify the most likely sales pattern for your products.
How to use better demand planning methods to improve business results 📈
As fluctuations in today’s market and supply chain continue to keep retailers on their toes, those that succeed in optimizing their inventory will be one step ahead.
The problem for most retailers is that the majority of inventory systems use a static 30-day moving average to forecast inventory, where your last 30 days predicts your next 30 days.
This approach leaves a lot of room for error because it doesn’t take into account past stockouts, demand outliers, or market fluctuations.
Many forecasting methods (especially manual and Amazon IPI-based systems) have accuracy levels comparable to a coin toss averaging at just 57%.
Here’s how to beat the odds using better demand planning methods.
Feed your forecasting system with clean data
Your demand forecasts are only as good as the information you feed them.
The first step to driving greater accuracy is to make sure you’re using clean data.
- Start by centralizing your sales and inventory data
- Remove any false signals (e.g., sales outliers, past stockouts, etc.).
- Delete copies, mistakes, and inconsistencies.
- Add any missing data.
- Standardize your information input.
There’s a saying in the world of data science: Garbage in, garbage out.
If you start your demand forecast with clear, accurate data your accuracy will continually improve as you feed it more information. Over time, your demand predictions will become more and more reliable.
At Flieber, we make sure all the products in your inventory system fully match with the exact same names and numbers you're used to seeing. You’ll have one fully-aligned product list for all your sales channels and even better, it'll look exactly how you want it to.
Keep an eye out for seasonal trends
Even when the quality of your data is high, you’ll still need to adjust your forecasts for seasonality.
With the right approach to demand planning, you can create relevant, holistic forecasts that guide you to accurate inventory decisions, no matter the season.
To ensure you keep pace with seasonality, here are some tactics that can help.
- Start your forecasts early, especially for products with long lead times.
- Set up individual reordering thresholds for seasonal vs. foundational products.
- Use ecommerce research tools like Helium 10 and Jungle Scout to track competitors' products over time.
- Keep buffer stock for your best-selling products.
With the right approach to demand planning, you’ll be able to get a firm grasp on your seasonal sales cycles so that you always know when to push harder on sales and when to relax your sales activities to consistently stay in stock.
Rather than depending solely on category data, Flieber’s forecasts uses patterns in the actual sales behavior of all types of products across a variety of categories to forecast the most likely sales patterns for both new and seasonal products.
Inventory optimization: Go beyond demand forecasting software
At Flieber, we believe in going beyond the rigid forecasting models of the past to help retailers move from passive inventory management to proactive inventory optimization.
Our inventory planning platform is designed specifically for multichannel retailers with complex products, lead times, and sales patterns.
With the help of AI and smart algorithms to account for sales velocity, seasonality, rank influence, price variation and more, Flieber achieves an 80.1% average inventory forecasting accuracy rate.
That’s 40% more accurate than the forecasting methodologies your competitors are using. The result is more sales due to fewer stockouts, stronger liquidity, and higher margins — all with a fraction of the work.
When you’re ready to level up your demand forecasts, Flieber can help. Book your free demo and find out how Flieber can help put you on the path toward increased sales and revenue.