Basics of Inventory Forecasting

By Youri Moskovic
Last Updated:
March 26, 2024

In this post, we explain inventory forecasting explained as if we were talking to a 5 year old.

Inventory forecasting simplified for beginners to D2C world

Before we get underway, it feels important to clarify that no member of our team considers themselves to be a fortune teller!

What we can do and what we believe to be important however, is the ability to forecast demand. Set sales objectives, confidently fulfil demand, and accelerate growth through data driven insights and never again believe that your inventory was standing in the way of your success.

How does inventory forecasting work?

Forecasting is generated based on historical sales data and real-time trends (inflation, environmental disasters, political conflict, hype). We look for patterns within these data groups so we can estimate how much product we might sell at a particular time of year and why.

Having this awareness will allow you to make better informed decisions concerning your inventory and overall health and growth of your business. Some forecasting perks include:

  • Increasing sales
  • Reducing inventory costs
  • Minimising waste
  • Improving operational processes
  • Financially plan more accurately
  • Developing a more loyal community

Number crunching may take you far but not all the way.

There is a lot to business which can’t be extracted from pure data. Here is how you can accurately do inventory forecasting

Qualitative assumptions, usually coming from industry experts, aid D2C operators in developing their long term strategy. Keep your ears open to what these leading voices have to say. You can also find a list of the top inventory forecasting tools in the Shopify ecosystem

Considerations to make when you are working on your forecasting

  • External variables such as seasonality, competitors, geography, economy, going viral
  • Internal variables such as types of products, pricing changes and promotions, new product offerings

Once you have taken the time to understand forecasting and its benefits, make sure to work through these steps for the most accurate findings:

  1. Define the future forecast period
  2. Set hypothesis
  3. Select the right forecasting method
  4. Build your base model
  5. Check for errors
  6. Test simulations
  7. Build your inventory plan
  8. Track real time data against scenarios
  9. Re-forecast regularly

We get that this all seems daunting at first, hence why at Prediko we make prediction as easy as a couple of clicks.

With us, you can build forecasts as complex or simple as you wish, edit them live, compare to the machine-driven algorithm or simple rolling-mean. All held in an easy “Plan” page. Take a look at what your forecasts with Prediko could look like

Ready to manage your inventory
without ripping your hair out ?