Useful Tips on Inventory Forecasting

Many business and distributors do their own inventory forecasting, they compare supply with demand, past sales, present sales and come up with a figure that will allow them to purchase the amount of product they need to keep their distributions running smoothly. Distributors place their order with the manufacturer and in return the buyer gets their product straight from the distributor, if the inventory forecasting is done properly there is never an excess of product and the business runs smoothly.
Where inventory forecasting goes wrong is when the distributor does not take into account all of the outside factors that may play a roll in supply and demand. Managing consumer predictions, client base, supplier production and so forth is all part of the process.
Vendor managed inventory places the responsibility of inventory forecasting on the manufacturer. They receive the necessary data via the internet or other source and they create and maintain the inventory plan based on the data provided.
What are the benefits of using vendor managed inventory? For the distributor that could mean a big reduction in inventory. They will be able to save costs by taking this part of management and placing it in the manufacturer’s hands. They are always insured of product availability and can increase their service due to the demand forecasting being removed from the equation. The distributor will be able to focus on the customer and provide a better quality service.
For the manufacturer the benefits include making inventory forecasting easier because they are able to check out the data of the point of sales for the distributor. There are fewer errors to handle on the distributor end because all of the inventory forecasting will be done in house. The Manufacturers ability to see stock levels will allow them to supply the distributor will stock that is low or has even run out. Keeping the upper hand on stock levels allows the manufacturer to know exactly what is needed before the need arises.
What is the downside of vendor managed inventory? As discussed earlier, customer gains and losses can have an impact on demand forecasting because the loss of a customer or the addition of a large customer will play a roll as to how much stock may be needed at any given time. Knowing customer ordering habits can be hard at first so having just the right amount of product in the beginning can be a challenge when the manufacturer is doing the inventory forecasting.
Finally, deciding whether to perform inventory forecasting in house or releasing it to the vendor is a decision the distributor will have to make. There are several factors to look at and working out the kinks can take time but can be profitable for both sides in the long run. Good communication between the manufacturer and distributor will play a large part in the success or potential failure of vendor managed inventory and inventory forecasting and should be taken into consideration before making the decision.