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5 Demand Forecasting Tips for Your E-commerce Business

Demand forecasting can be a challenge for any e-commerce business. If you don’t forecast demand correctly, your business can end up with too much inventory on hand or not enough inventory when it’s needed most.

In 2021 alone, D2C (direct-to-consumer) e-commerce sales in the US crossed 128 billion USD and are projected to touch at least 213 billion USD by 2024. This indicates the volatile nature of demand for the e-commerce industry in the US. If you own an e-commerce business, we are sure you have doubts about how to plan for demand fluctuations in a growing marketplace.

Yet, with the right tools and processes in place, you can predict how many of your best-selling products will sell over the next week or month. To find the best model that will help you grow your business profitably, you may check verified online resources for forecasting demand.

Remember that you need to understand the essential and critical task of demand forecasting, so you can make better and more evolved decisions at your next business meeting.

The following five tips will help you plan your demand forecasting strategy for the coming year better.

1. Use Data & Analytics

Demand forecasting is your first line of defense against shortages and overstock. It’s the foundation on which your business operates, so you should take the time to do it right.

A good forecasting system is based on two key elements.

2. Data

Your historical sales data will help you make more accurate predictions about future demand for products on your website.

This data will help you determine how much inventory to carry to meet customer demand. 

Your aim is to not run out of stock without spending too much money on storage space for extra items. Slow-moving items can get piled up in your warehouse as a result of a drop in demand. They won’t sell quickly enough to justify keeping them around. 

3. Analytics

Once you’ve got some sales data under your belt, it’s time for some analysis. By analyzing this information, you’ll be able to make more informed decisions about future orders and thus improve upon past forecasts by taking into account seasonality trends and other factors that impact E-commerce businesses like yours.

4. Lean Inventory Planning

Lean stocks are a great way to reduce costs, improve inventory efficiency and generate greater flexibility for your business. Lean Stocks are part of the JIT(Just In Time) Strategy and give a financial edge to your business by freeing up your working capital.

Lean stocks are the lowest level of inventory you can have without negatively impacting your service levels. This concept was widely adopted in Japan at Toyota’s factories, aiming to eliminate “muda” or wastefulness from the manufacturing process by removing bottlenecks, carrying costs, and unnecessary processes from manufacturing.

In post-war Japan, this helped companies produce made-to-order products instead of stockpiling, ensuring optimum usage of available capital. You may also think about this concept if you are boot-strapped or planning to keep your costs low. 

However, in such cases, your procurement/production chain needs to be able to react to any changes in market demand, as your buffer stocks will be on the lower side.

5. Collaborate With the Inventory Planning Team

Demand forecasting and inventory planning are two important components of a successful e-commerce business. 

Demand forecasting is the process of estimating future demand for products, while inventory planning is the process of managing the flow of goods through your supply chain. The two processes go hand in hand, as one cannot be done without the other.

While both tasks may seem daunting at first glance, there are some simple steps you can take to make each one easier on yourself to ensure that both your store’s customers and its cash flow are well-served by your business plan.

Make sure your procurement/production team touches base with your business development or sales team through weekly meetings to understand the demand-supply situation.

Also, before quarterly or annual planning, make sure both inventory and business development teams are aware of forward-looking plans. For example, if a large order is going to come through, the business development teams can give a heads-up to the inventory team, or the inventory team can appraise the sales guys about any upcoming shortage in any particular product in the coming months.

6. Leverage Machine Learning

Imagine if you could make predictions about demand with just one click instead of manually creating hundreds or thousands of reports.

It’s possible to have a machine-learning model do this for you. Machine learning is a type of artificial intelligence that can learn from data. This means, with machine learning, you can automate the process of making forecasts based on your past customer behavior.

Companies like Microsoft, Oracle, IBM, and Amazon Web Services are using machine learning to provide solutions to their clients as large SMEs are adopting AI and ML applications.

 The global market of Machine Learning Solutions and Services is expected to reach 69.71 billion USD by 2028, growing at a rate of 35% CAGR over the estimated 2021 base of 8.27 billion USD. This is a testament to the huge potential of leveraging ML to make better data-driven decisions.

To help your machine learning model make accurate forecasts, it is important to provide historical sales data for the past 2 to 5 years. It will help the ML program discern trends in demand patterns and provide you with key actionable insights.

7. Keep Safety Stocks

To forecast demand for your E-commerce business is important to understand how safety stocks can be used to manage risk.

Safety stocks are a buffer against uncertainty. It is important to use them when you’re not sure how much inventory will be needed or when there’s too much uncertainty about the volume of sales. 

Safety stocks can also help manage risk by smoothing out demand over time. They can also reduce the number of stockouts and backorders, which means less stress for your customers and more money in your pocket.

Demand forecasting is an essential part of inventory planning.  Every e-commerce business should have a plan in place for the same. The good news is that it’s a lot easier to do now than ever before with the right tools and processes.

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