Measure inventory movements to anticipate demand.
From our previous article on stock movements and minimum order levels we shall
expore further the ability to use this information to produce predictions of future demand.
To do this you need to analyse stock going out over a period. This is not a static exercise but ongoing. Items go in and out of fashion, have seasonal variations and maybe price sensitive (too expensive reduces supply, discounted too much and they lose their market value). To begin with, look at sales in terms of units over the period of a month, that will at least give you a data set to begin with and vary from there.
Capturing all the varaibles for inventory control.
Once complete then you do the other side of supply. This gets even more complicated as you need to know how much you would need to fulfil current and future demand. This means a bit of forecasting guesswork to make sure you have enough before the next delivery. The source becomes even more varied when there are multiple suppliers for the one product. Some you may prefer for quality, others price, others speed of delivery. If products are from an international supplier, then allow for time when held up at the docks. This is where supplier ratings become important and to register a delivery time per supplier is also useful. An average time is a good starting point and then you can vary from there. There are always variables and hold up that one can’t account for but at least you have a benchmark and an expectation is understood.
What are the advantages of inventory predictions?
This has a variety of uses apart from future planning of your inventory. You can keep on top of customer expectations so that they know when an order will be complete. It easier to manage inventory as you have on check the necessary items to complete orders. You would save money as you don’t have to pay a premium price for out of inventory items and quick delivery. You take advantage of ordering at standard purchase levels leveraging on pricing discounts and helps the supplier know exactly how many units you need at routine intervals. It also makes the best use of your cash as you keep as much as you can in the bank not tied up in stock. Basically, become more organised.
Next in the series we shall see how this information can be used for more efficient use of inventory control and the affect on accounts.
About the Author:
Malcolm Ford has worked for over 8 years in the ERP space providing advice on logistics and warehouse issues to businesses across the UK. Having an accounting background allows for an appreciation of the financial implications involved with stock control.