The Beginner’s Guide to Demand Forecasting for E-Commerce Fulfilment

What is Demand Forecasting?

Put simply, demand forecasting helps businesses gain a better understanding of customer behaviour, helping them get to grips with what to expect from customers. In particular, demand forecasting provides businesses with indicators of what their customer base wants now and is likely to want in the future.

Demand forecasters gain these valuable insights using quantitative and qualitative predictive analysis techniques that use past and present data. These techniques help to predict what customer/consumer trends might emerge in the future.

Once these predictions have been established, businesses can use this information to inform decisions about product direction, pricing, expansion and more.

Find out more about understanding your customers with our blog on the customer experience >

What is the Impact of Demand Forecasting?

Demand forecasting gives a business insight into changes that might be required to ensure they stay profitable. For example, it can provide information about the appetite for existing products and identify new products that might generate customer interest.

Demand forecasting can be done with varying degrees of specificity. When forecasting for a particular product, demand forecasts offer a similar practical result to a sales forecast in that they offer insights into desired quantities.

Micro and Macro Demand Forecasting

In other instances, businesses may benefit from more generalised forecasts. At the product category level, you might look into questions such as “how much of a given type of product?” will be purchased by our customers in a given year. Information gathered on micro and macro levels allows a business to adequately prepare for what is to come.

Long-Term and Short-Term Demand Forecasting

In addition to micro and macro-level forecasting, forecasting can also be long-term or short-term. Often, long-term demand forecasting looks as far as 12-48 months in advance. Forecasts this far in advance allow businesses to make relevant adjustments to the supply chain or expand into emerging sales channels.

In contrast, short-term forecasting primarily deals with the upcoming 12 months. These short-term forecasts can be useful for predicting seasonal demands – allowing a business to coordinate inventory in advance.

The Role of Demand Forecasting within E-Commerce

Demand forecasting helps businesses stay ahead of the curve – giving them the tools to figure out what their customers will want ahead of time. While demand forecasting is useful for a range of business formats, it is especially relevant to e-commerce businesses.

Often, the unpredictability of customers can wreak havoc for e-commerce businesses. One product that was receiving high sales one month may be attracting dust in a warehouse a quarter on. Demand forecasting varieties such as those noted above help businesses avoid stock issues, optimise their process and maximise efficiency.

For e-commerce businesses, data used to produce forecasts might be taken from an order management system or other source of sales data. Estimating future sales and fluctuations allows e-commerce businesses to maintain appropriate stock levels and an overall healthy bottom line.

But what are some of the more detailed ways in which demand forecasting helps e-commerce businesses?

Minimising Risk

Effectively balancing supply and demand is a key challenge for all e-commerce businesses, especially those who hold large quantities of stock. In order to store their stock, businesses will need to find appropriate storage facilities – which can come at varying price points depending on location and demand.

Demand forecasting offers businesses insights into how much stock they will require at a given time. Access to such insights reduces the chance of a business holding a surplus stick and paying over the odds for stock that doesn’t align with demand.

Optimising Your Pricing Strategy

In addition to helping your e-commerce business prepare stock, demand forecasting also allows businesses to make timely alterations to prices to maximise profit. For example, a business may choose to reduce prices when they anticipate demand to be low, while increasing prices during times where demand for a particular product is expected to increase.

Demand forecasters, together with pricing strategists, allow businesses to mould ebbs and flows in businesses to benefit their overall profits.

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Maximising Consistency

Sales can ebb and flow throughout the year, especially during seasonal peaks and public holidays. An e-commerce business may find that certain products or collections consistently increase in demand during certain months. However, this is not always the case! Demand forecasting allows businesses to plan ahead and stay afoot of upcoming changes.

Demand Forecasting and Inventory Management

Amongst these other advantages, demand forecasting plays a vital role in optimising inventory management. Without accurate forecasts, e-commerce businesses may find themselves short on stock – with insufficient numbers of products that are in high demand.

Insufficient inventory is a key cause of delayed dispatch or slower delivery times, leading to reduced customer experience and fewer repeat sales. In contrast, poor inventory management may also lead to excess provisions of stock that may be going through a trough in demand.

Not only does excess stock present an example of where businesses lose money through manufacturing or ordering unnecessarily, it also brings about the issue of costly storage. Without effective demand forecasting, businesses may find themselves paying for storage in which to keep unwanted stock – which is not only inconvenient but costly too.

Demand forecasting is a useful tool to ensure your business remains profitable, and that you can meet the demands of your customers as well. To properly utilise demand forecasting you need access to insights on your stock, integration with your e-commerce site, and a reliable logistics partner to fulfil your orders.

At Allegro Logistics, we offer an integrated E-Commerce Fulfilment Solution based in Bristol, which is the perfect partner to your demand forecasting efforts. Our combined team have an extensive breadth of experience in the logistics field and our range of services cover all aspects of the logistics supply chain. For more information about how our services could help your e-commerce business, request a quote today.

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