How to Optimize Inventory with Demand Forecasting

In this article:

• Why Demand Forecasting Matters
• Inventory Analytics Overview
• How to Use Demand Forecasting to Optimize Your Inventory

Why Demand Forecasting Matters

Accurate demand forecasting is a must-solve problem for brands looking to improve their margins. Too much inventory on the shelves? Storage costs eat away at the bottom line. Not enough products in stock? Lost sales pile up. Enter: Demand Forecasting.

Cart's Demand Forecasting algorithm ingests your storefront and marketing data to create daily, weekly and monthly sales forecasts for each SKU. Equipped with these forecasts, you can dynamically adjust marketing spend and inventory orders to optimize your margins.

Inventory Analytics Overview

You can find the Attract Overview dashboard by clicking here if you are logged into Cart Console, or by navigating to Unified Analytics > Fulfill > Optimize Inventory:

The top row of the dashboard highlights a quick synopsis of trending sales, the value of inventory on hand, and your inventory turnover ratio:

• Inventory Turnover: The rate that inventory is sold/used and then replaced. The ratio is calculated by dividing sales by average inventory for the same period. A higher ratio means you are able to better meet the demand of popular items without slow-moving stock draining storage costs.
• Inventory Turnover Ratio: A value of 1.00 over a 60-day time period is generally considered healthy in ecommerce businesses. 

How to Use Demand Forecasting to Optimize Your Inventory

Stock Statuses

Our proprietary Demand Forecasting algorithm generates sales forecasts for each of your SKUs and projects stock surplus or shortage based on your inventory levels. SKUs that have an imbalance between demand and inventory are labeled with a stock warning:

• At Stock: SKUs with inventory levels that meet projected demand over the next 60 days.
• Excess Stock: SKUs with more inventory in stock than projected demand over the next 60 days.
• Low Stock: SKUs projected to experience stock outs in the next 60 days based on demand.
• Out of Stock: SKUs currently out of stock.

The SKU summary table shows the distribution of these labels across your entire catalog. Clicking on these will filter the bottom portion of the dashboard to only SKUs with that label:

For SKUs that are out of stock or low on stock, you may consider creating a purchase order or shifting marketing dollars elsewhere. For SKUs with excess stock, allocating more marketing spend could help reduce storage costs from excess inventory.

Identifying SKUs for Optimization

The Demand Forecast Table shows a detailed view of the demand forecast and stock status details for each SKU. You can adjust the Confidence filter to change how selective the model is in the stock warnings identified (higher confidence = more selective). 

Based on the forecasted orders per day and inventory on hand, the table shows a prediction for when stock will run out (Days Stock On Hand). The Projected Excess or Loss column shows the number of excess units on hand for SKUs with excess stock, or the number of projected lost sales from stock outs for low or out of stock SKUs.

How do you use this in practice? Generally, you should order more inventory for SKUs with the highest projected loss if possible and reallocate marketing dollars from SKUs with low/out of stock warnings to SKUs with excess stock.

The last row of dashboards shows your SKUs sorted by high projected excess and loss so you can easily identify where to focus your attention for ordering more inventory and shifting marketing spend. You can click on the "Show Instructions" button above the Demand Forecast by SKU for a reminder on how to use the dashboard at any point.