Demand forecasting and product procurement: a match made in heaven

By Oleg Mikhailenko
Published in Solutions
August 15, 2022
5 min read
Demand forecasting and product procurement: a match made in heaven

Fulfillment is a hot-button topic both on this blog and industry-wide. Efficient fulfillment is so often the key to pleasing customers, avoiding delays, and nailing that crucial 2-day delivery window every single time. But in order to fulfill products, it goes without saying that you should first have products to fulfill! Business owners and merchants need to find a way to procure the necessary materials to manufacture their products before putting them up on their online storefronts for eager customers to buy. How does procurement work? And furthermore, how might a merchant find out which things they need to procure at all, or which things should be prioritized for procurement over others?

One simple tip is utilizing demand planning. Demand planning is a valuable tool in the online seller’s arsenal, making sure that there are neither too many or too few products on hand at any given time. Want to learn more about how to implement this data-driven approach? Read on for a full overview.

How does demand forecasting feed into inventory procurement?

Demand planning, or forecasting, is the practice of using predictive analysis of historical sales data to estimate and make educated guesses about future customer demand for a product or service. This enables businesses to make better decisions regarding supply and the amount of inventory to keep on hand. It’s by no means an exact science, and will almost certainly never be 100% accurate. Because of the number of factors that can affect a customer’s willingness and ability to purchase a given product over time, the actual mechanics and techniques involved in demand forecasting can be quite difficult. It’s for this reason that many businesses use some sort of software or artificial intelligence to make the calculations on their behalf.

Indeed, modern best practices in regards to demand planning almost insist on the use of some sort of software, as the thought of doing all those calculations by hand can be overwhelming even for an economist or mathematician, and it’s cheaper besides. Technology enables a business to analyze more than one market variable at a time, vastly cutting down on the amount of time required to gather useful numbers. Sales trends, seasonality, market fluctuations, and external factors can all be synthesized in one go. Demand forecasting can take all of these different circumstances into consideration and make sure you’re ordering the products you need at the time you’ll need them.

Why use demand forecasting?

To put it simply, by using management and prediction techniques, it avoids the embarrassing and reputation-damaging event of being sold out of inventory for weeks on end. Customers’ hype only lasts for so long. If they’re in the market for something you’re selling, but you’re sold out, they won’t wait around for very long. They’ll either forget all about it or move onto one of your competitors, losing you the sale and some valuable and much-needed revenue.

What’s more, the proper application of predictive techniques and analytics nets you more money over time while saving you overhead. Without this knowledge, bad decisions are easy to make. But with the right numbers and know-how, you can keep operating costs in check by reducing the amount of overstock you have to keep on hand. Money that was once spent on housing an overage of product in a warehouse can now be funneled back into other aspects of the business, such as product development or marketing. And when you do anticipate a surge, being able to purchase in bulk can gain you a better price-per-unit than you might have been able to negotiate otherwise, reducing your costs even more.

What even is procurement, anyway?

Procurement is the act of sourcing and purchasing goods and services that will contribute to the inventory of your business. It’s about making sure you have enough of the constituent ‘stuff’ you need for your business to be fully operational without too many hiccups. From direct procurement, which means sourcing and buying the items necessary to manufacture the products you sell to your customers, to indirect procurement, which represents finding packaging, shipping labels, and other similar materials, it’s a part of manufacturing that’s impossible to overlook without causing all kinds of problems.

How can you be sure to procure what you need?

Follow this simple set of steps and you won’t be far from becoming a procurement master. First, start with a good idea of what exactly it is you need to get your hands on. Is it materials for a totally new product, or an old product whose stock is dwindling dangerously low? Make a note of which SKUs need to be topped up, and the materials needed to manufacture those products. Demand forecasting will help you out a lot here.

Next, you might find you need to create and submit an official purchase request. Depending on the size of your company there may be someone who can handle all that for you. But even if it’s just you, it’s good practice to get into the habit of marking and filing some type of official form whenever you go out to purchase things for your company. Not only will it keep things neat and tidy, but it’ll really get you out of a jam when the tax collectors come calling.

After that, it’s a great idea to spend some time assessing different vendors until you find one that’s perfect for your business. Cost of course is typically the most important factor, but you might find it worth your while to shell out a few dollars more to secure the services of someone with a top-notch reputation in the industry. It’s also important for your brand’s identity to align yourself with vendors and suppliers that adhere to your brand’s values. For example, if you sell yourself as an environmentally responsible brand, it’s a must to find vendors that use sustainable practices.

Once you’ve narrowed down your list to a few promising hopefuls, get quotes from all of them to see which can provide the best service at the most efficient price. In theory, you ought to make sure you get at least three quotes from differing vendors to ensure you’re finding the right service for your budget. It won’t kill your business long-term if you go with a vendor that’s excellent but not the puzzle-perfect fit, of course, but why not try to make the best possible choice you can right from the start?

Finally, once you actually have your materials and finished products in your own two hands, inspect them thoroughly and document any errors or discrepancies. Of course, no manufacturing process is perfect, and there’s bound to be a couple of duds in every batch. But make sure that every shipment is up to your strict standards to avoid any unpleasant and burdensome delays.

In conclusion

Procurement is one of the most important processes in any business. After all, if you don’t procure materials and services, how are you supposed to manufacture, fulfill, and ship your products? It just doesn’t make sense. Luckily, we here at P2Pseller have your back. Sell more, scale infrastructure, and grow your business to unprecedented levels.  Register a free account with us today to browse all of our featured warehousing and 3PL partners with no commitment necessary on your part. We’d love to have you on board to bring about the ecommerce revolution and take your business from beginner to the very best.


Tags

#manufacturing#procurement#fulfillment#demandforecasting
Previous Article
Business basics: retail procurement

Oleg Mikhailenko

Co-Founder, CEO P2Pseller

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