How to use inventory forecasting for your business

Inventory forecasting is the process of predicting how much stock a company needs to keep up with customer demand.

These predictions are informed by market research, sales data, and other variables that cause inventory levels to fluctuate.

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When it comes to inventory management, one of the biggest challenges is striking the right balance between healthy cash flow and optimal stock levels.

Let’s look at the key variables every organization needs to know before they can forecast inventory.

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Reorder point

A reorder point is a specific stock level that triggers replenishment. Calculating a reorder point ensures you don’t dip below the minimum inventory needed to fulfill orders.

Safety stock

Safety stock is extra inventory held to reduce the risk of stockouts or shortages. The formula for safety stock is the difference between your maximum daily usage and lead time, and your average daily usage and lead time.

Maximum stock level

This metric indicates the most units you can store for any given SKU. Understanding maximum stock levels ensures you don’t run out of space for any inventory.


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