Inventory forecasting is an essential component of any retail business and Shopify stores. It can help you make better decisions about how much inventory to order, when to place orders, and what product mix to carry.

Shopify store owners who are looking for more accurate projections of their future inventory need to avoid running out-of-stock situations that have the potential to impact revenue significantly. A precise eCommerce inventory forecast is key to managing your business and optimizing profits, and it's something that all eCommerce business owners should be focusing on.

“Supply chain is hard, but short-term inventory forecasting is easy. Do better.”  Helena Price Hambrecht - CEO of Haus

If I’ve kept you up until this point, that’s awesome! So now, let’s dig in together for more details about inventory forecasting and why Shopify stores need effective inventory forecasting.

What is Inventory Forecasting?

Inventory forecasting is a technique for projecting inventory quantities ahead of time. With the help of inventory forecasting, Shopify merchants may work on their inventory planning to determine how much inventory to order and when to place orders.

Shopify store owners can use forecasting technology to produce accurate predictions of future business performance based on historical sales data and other variables such as seasonality or special events. It can help them determine their optimal stocking level and purchase frequency to reduce lost revenue due to out-of-stock scenarios while avoiding overstocking and excess costs associated with additional warehousing fees.

The goal of every eCommerce company is to maximize the number of items sold while minimizing how much inventory they need to carry at any given time. That means it's essential for retailers to understand what drives demand and identify specific patterns in their sales data. For example, you might discover that your products tend to sell better around certain times of year (like Christmas, Black Friday, or back-to-school season), during popular events (like sporting games or holidays), or if you make certain types of promotions available like special discounts for limited times only.

Products driving demand are critical for eCommerce inventory forecasting. If one product keeps selling out when you restock it, then it's likely due to factors beyond just seasonality--it could be a hot-selling product, or it could be a seasonal product that is popular year-round. This data can help inform your future inventory projections as you determine which products need to be available at all times and how much of those products should be ordered.

Why is Inventory Forecasting Necessary?

To manage your inventory, you should have an accurate forecast of what will sell in the future. This way, you can adjust your order quantities accordingly and avoid any excess or shortages. Imagine the following scenario:

You get an email telling you to expect a delivery load of umbrellas and that it will be there the next month. You check your forecast for this product and see that you’re expecting 10% more sales upcoming month than the recent data, so you order an extra 200 red umbrellas from your supplier to ensure there’s enough stock.

However, if you get that delivery load of umbrellas the next month, you might see that your forecast was wrong. In that case, you’ll have 200 more red umbrellas than required! You have no idea what to do with these extra umbrellas, so they just sit in storage. Sure, they’re adding value to your business, but not when you consider the cost of storage, the interest you could’ve earned on that money if it had been in your bank account instead of unproductively sitting in storage. Now imagine all the other things you could do with an extra 200 umbrellas…

Now think about how much inventory forecasting can affect things! When you forecast correctly, you know exactly how much you should order and therefore how much money to set aside because there’s no point having money in your bank account that’s not earning any interest. You also avoid paying storage fees and can use that cash for other investments like marketing or opening new locations!

Demand forecasting isn’t just great, and it’s essential for any retail business and any Shopify store that wants to stay competitive in the market. It will undoubtedly give you a head start in your journey towards optimal inventory management.

Five Benefits of Inventory Forecasting

As Shopify stores are becoming more common every day, the need for proper inventory forecasting arises. And without it, your Shopify store might lose revenue. Here are some reasons why you should look for an inventory forecasting solution for your Shopify store ASAP:

1. Prevent Out of Stock & Revenue Loss

If you’ve ever run out of stock and been unable to fulfill an order, you know the damage it can do. Accurate forecasting allows you to avoid precisely this type of scenario – protecting your business from costly mistakes.

When Shopify stores and retailers don't have the appropriate inventory level and their consumers can't buy what they want, this is known as a stockout or an out of stock situation. Stockout is a significant problem as retailers miss out on sales and customers go elsewhere, affecting the retailer’s brand image.

The primary role of inventory in any business is to ensure that there's always a supply of products or materials available to maintain and support sales. Without enough stock, companies can't meet customer demand, causes to lost sales opportunities and increased customer frustration when customers can't get hold of what they want when they want it.

Knowing how much inventory to order makes it easier to determine which products you should carry in stock at any given time, meaning that forecasting allows you to plan the best possible assortment for your shop and avoid out-of-stock items or low inventory. In addition, you can easily define which products/variants to keep in stock by assigning different rules, such as having a good list of all variants with a "best seller" designation, maintaining a certain number of each variant available, etc. 

Suppose you have two similar but non-identical products that are both displayed together on product pages. In that case, you can also compare sales of these two items to optimize your inventory levels. Removing slow-selling variants will allow you to carry more popular ones without overstocking or wastefully tying up funds in excess inventory.

By forecasting inventory, you'll know exactly how much and when to expect each purchase, meaning that you can plan out the best possible shipping schedule and route for your shipments, allocating more money towards purchases made earlier to get them delivered faster! You can also make sure that you buy enough of each kind of product so that there's always a minimum amount available (even if it takes months to sell them all). That reduces the risk of stock-outs and ensures that you'll never have to tell a customer, "we're currently out of stock"!

Inventory control is a science, but elements of art also come into play. There's no single answer to the question "How much inventory do I need?" that works in every situation because your business and industry are unique. However, there are guidelines companies can follow. No matter what size your company is or what product you sell. Hence, you have enough products on hand to meet demand without overstocking and tying up money in unsold products.

2. Optimize Your Logistics Costs

Without proper inventory optimization, you could end up paying for more shipments than necessary. 

Inventory forecasting can help you decide how much to buy from your suppliers at a time, by knowing precisely what's in demand and by when you can choose the best possible order quantity for each supplier to minimize costs. 

Since you'll know how much to order a few weeks in advance, you can schedule all of your shipments for a more optimal time. Sending orders together rather than staggering them also reduces the number of times you have to pay for shipping which cuts down your overall costs - and helps optimize margins.

In addition, according to an article on the UNCTAD (United Nations Conference on Trade and Development), 2 things have happened since COVID-19 that will require you to pay attention to your store’s inventory forecasting:

1. During the pandemic, the rise in demand was greater than anticipated, and the supply of shipping capacity did not keep up that resulted in a global unprecedented freight shortage. 

2. According to The Economic Times, the pandemic has disrupted maritime logistics chains and boosted demand to new heights, and resulted in record-high costs for container shipping.

As a solution for that, UNCTAD suggests: “To help reduce the likelihood of a similar situation in the future, the UNCTAD policy brief highlights three issues that need attention: advancing trade facilitation reforms, improving maritime trade tracking and forecasting, and strengthening national competition authorities.”

3. Handle Backorders with Confidence

Backorders can be an annoyance for your customers, but they are also a necessary evil when demand outweighs supply. In addition, if you have accurate forecasts in place, it'll be much easier to provide estimated shipping dates for each order, so your customers aren't sitting around waiting indefinitely!

By anticipating demand for a particular product, it's much easier to accept backorders without running the risk of overselling. For example, if you expect a specific product to be out-of-stock due to high order volume, simply allow customers to add it to the cart so they can receive updates when you get new inventory in!

The bottom line is this: adding forecasting capabilities means smoother operations, better cash flow management, and wiser decision-making overall - all things critical to your business' success.

4. Provide a Stable Supply Schedule with Your Supplier

This can be useful when working with overseas suppliers, who are much more likely to provide the best possible pricing if you have a reliable schedule in place. In addition, forecasting allows your supplier to see an accurate representation of how much inventory should be supplied - which makes for a fantastic working relationship. 

The chart above shows the perfect scenario for a shop owner. However, if you can not set up proper inventory forecasting to control your stock, you might face 3 major issues:

1. The supplier needs to allocate raw materials last minute; they pay higher prices.
2. The cost of raw materials reflects on the merchant's buying price from the supplier.
3. Shipping last minute costs more compared to booking containers earlier.

A consistent and predictable schedule will help you to save money and offer the best possible pricing to your customers in return.

5. Minimize Manual Work & Errors

Many Shopify store owners download numerous inventory and order reports from Shopify. As a result, they face issues like fast outdated data and manual number crunching on Excel, which can be exhausting for them due to Excel's limitations.

If you have a large inventory and a growing Shopify store, it will be impossible for you to manage by hand. It would help if you had an automated solution that could handle even the toughest of orders. Forecasting ensures that you'll only place orders when they're genuinely needed - freeing up your time for more important things!

Inventory forecasting provides objective data about future demand. As a result, you no longer have to rely on projections or assumptions to make purchasing decisions; instead, it's all based on hard facts and figures, making buying more accessible and eliminating mistakes caused by human error. Forecasting also allows better decision-making as there is a factual basis for placing orders, meaning no wasted money!

If you want to run a successful Shopify store, migrating from Excel to accurate inventory forecasting is the key. Without it, your business could be at risk for lost sales and supply issues. 

Or if you're already using Stocky but need more advanced inventory forecasting, see our Best Alternatives to Stocky for Shopify Stores.

Forecast & Plan Your Shopify Inventory with Fabrikatör

The integration of advanced inventory forecasting tools like Fabrikatör is not just a strategic move but a necessity for Shopify store owners aiming to optimize their inventory management, reduce costs, and maximize profits. By embracing Fabrikatör, store owners can effectively navigate the challenges of eCommerce inventory management and position themselves for success in a competitive market.

To learn more about how Fabrikatör can transform your Shopify store's inventory management, why not explore its features and consider how it can tailor to your specific needs.

With Fabrikatör, you can:

• Save time by restocking inventory on time or creating purchase orders in seconds. ⏱️
• Forecast future demand to optimize your supply planning.
• Monitor inventory, set growth goals, and create custom reports directly from the dashboard. 📊
• Easily gain visibility over your operations.👀
• Utilize backorder and preorder features aligned with purchasing to turn inventory and out-of-stock products into profit. 💰
• Streamline inventory planning and control by effortlessly managing purchasing, demand forecasting, freight, and order management. 🚚

Book a demo now to elevate your inventory management process and maximize your Shopify revenue! 🚀