Seasonal demand and inventory management

By Oleg Mikhailenko
Published in Solutions
July 04, 2022
3 min read
Seasonal demand and inventory management

Seasonal demand is something that any ecommerce vendor worth their salt needs to get a good handle on in order to succeed in this business. Not only is there stiff competition from other merchants and high expectations from customers, interruptions in the global supply chain mean that the question of how to manage inventory effectively is more important than ever. Stockouts, manufacturing interruptions, and unexpected business booms are one thing, but in order to handle the unexpected, you first need to master the expected. For instance: do you know when your products are most likely to be purchased? Your busy seasons and the seasons where you could perhaps find more to do? Read on for an overview of inventory forecasting.

What is inventory forecasting?

Inventory 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. It’s about far more than Googling how to manage inventory in Excel. 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 and track matters such as seasonality.

What is seasonality?

Seasonality refers to changes in order volume throughout a set time. Seasonal products usually spike in order quantity at specific times of year (think about all the purchases made for trees, ornaments, and gift wrap in December!) but remain relatively low for the remainder of the time. That’s not to say, however, that you’ll only have to deal with seasonality if you’re selling items such as skis or bathing suits. Demand for all products waxes and wanes with the year. The holiday rush is one such example.

Why use inventory 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 is a stockout?

If you happen to sell out of a specific SKU, you have what’s known as a stockout. Stockout costs can be more than you expect. Not only do they represent a missed opportunity for sales, but if it’s a product that your buyers are clamoring over, having a long period of time where the coveted item isn’t available can damage trust and brand loyalty. Hype only goes so far towards keeping your customers loyal. It’s wise to maintain a certain level of safety stock in your ecommerce warehouse to avoid this outcome.

What is safety stock?

In a nutshell, you can understand the definition of safety stock as the minimum level of inventory required to last you through the arrival of your next shipment of merchandise. Different merchants and 3rd party logistics providers will have differing ideas and opinions on what constitutes an acceptable minimum level of supply,  and there’s a number of calculator sites out there that can help you make the best decisions possible for your business. Having a robust understanding of what constitutes an acceptable level of stock to keep on hand is an instrumental part of demand planning.

In conclusion

Demand forecasting is a highly beneficial tool that reduces up-front and running costs while maximizing revenue. No matter the size or age of your business, it’s a valuable technique that will without a doubt provide valuable insights. With the advent of AI and machine learning, these numbers are quicker and easier than ever to have close at hand. If you think demand management software is a good choice for you, P2Pseller is proud to offer demand and inventory planning tools with real-time updates, 24/7, for all our e-commerce selling partners. Sell more, scale infrastructure, and grow your business to unprecedented levels. We’re excited to help you smash sales records quarter after quarter, with zero stress and zero phone calls.


Tags

#seasonaldemand#demandforecasting#demandplanning#inventory
Previous Article
Customer centricity: the prime directive of business

Oleg Mikhailenko

Co-Founder, CEO P2Pseller

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