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Which Factors Affect the Inventory Forecasting Process?

Nov 25, 2020 | 4 min read

Situations such as the recent COVID-19 pandemic can cause your sales to fluctuate, thereby impacting your business revenue. Sometimes, you might face a shortage of stock, or on the other hand, you might experience a decrease in product demand due to unstable market conditions. Though you can’t control market uncertainty, the good news is that you can predict product demand for the future based on past data and relevant business information. You can estimate future expenses and sales using forecasting and inventory management software. What is Inventory forecasting software, and how can it help your business? Read the article below to know why this type of forecasting software is essential to prevent loss and increase business revenue.

What is inventory forecasting?

Inventory forecasting, also known as demand management, uses factors such as historical sales data, trends, seasonality, and known upcoming events to predict future inventory levels for a specific time. Inventory planning software helps you manage product stocks to fulfill customer needs at the right time and in the right place. Accurate forecasting ensures that you spend the right budget on inventory and draw accurate sales projections.

Based on your need, you can carry out inventory forecasting at various levels, such as the product level, product category, product location, and category location. You can use inventory forecasting software to estimate inventory levels of raw materials and finished goods — but generally, forecasts are generated for finished goods. The best forecasting software systems use Artificial Intelligence to obtain a timely and reliable output.

Factors influencing the inventory forecasting process

To obtain the best results, it is important to understand various components that influence your inventory forecasting process. Below are the factors that apply to most businesses. However, the elements might vary depending on the business type, product type, competitor activities, and promotional events.

Input components of inventory forecasting include:

• Historical sales data

• Previous purchase information

• Purchase, manufacture, and distribution lead time

• Sales planning

• Supply planning –includes production, raw material, and resource distribution

Types of inventory forecasting 

The type of inventory forecasting depends on your business requirement. Take a look at the following methods to get an idea of which technique could be best for your business forecasting needs. 

1. Quantitative forecasting

 The quantitative forecasting method is considered more accurate than the qualitative forecasting technique. It uses previous sales data to estimate future inventory levels. Examples of quantitative forecasting techniques include the time-series model and associated model — these models use quantitative temporal data to generate a forecast. 

2. Qualitative forecasting

 Qualitative forecasting is used when a company lacks historical data. In such cases, companies consider data obtained from the customers. Qualitative forecasting includes complex data collected from sources such as market research and focus groups. 

3. Trend forecasting 

The trend is defined as the change in product demand over a specific time. Therefore, the trend forecasting technique uses historical sales data, excluding seasonal demand, to identify the upcoming trends. The trend forecasting method can predict how likely specific types of customers are to purchase the product in the future. 

4. Graphical forecasting 

As the name suggests, the graphical forecasting technique uses graphs to represent data. In graphical forecasting, sales peaks and troughs are demonstrated in a visual format, whereas a mathematical form is used in trend forecasting.

Benefits of inventory forecasting for businesses 

1. Cut costs 

Inventory forecasting ensures that you have the right product in the right amount to fulfill customer need. You can prevent product stock out to avoid sales loss and grow your revenue by predicting your product’s increased future demand.

2. Optimizes supply chain management 

Forecasting and inventory management software helps in supply chain optimization. Generating a forecast can improve the production cycle and automation of different processes.

3. Customer satisfaction 

Using inventory planning software, you can prevent stock out situations and retain your dedicated customers. Trend analysis can determine the demand for new and upcoming products.

4. Helps in strategic planning 

Forecasting and inventory management software is an excellent tool to balance your stock levels with your business goals. You can generate more accurate inventory data to make informed decisions using inventory planning software. Moreover, demand planning software optimizes the supply chain process to improve margins and profitability.


Suppose you have suffered a considerable loss due to lack of inventory management or want to avoid future sales loss. In that case, it is crucial to understand the role off forecasting and inventory management software for your business. You can get in touch with our experts to learn more about our demand planning software. Avercast has developed one of the best inventory forecasting software systems to help all large and mid-sized businesses understand consumer demand.

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