Inventory Management and Demand Forecasting
Inventory is both an asset and a liability in retail. Too much inventory ties up capital, occupies warehouse space, and creates markdown risk. Too little inventory causes stockouts that disappoint customers and lose revenue. Inventory management and demand forecasting technology optimises the balance — maintaining availability while minimising inventory investment and risk.
Inventory Management Fundamentals
- Reorder points: Trigger a replenishment order when stock falls below a defined level — calculated from lead time, safety stock, and average daily sales
- Safety stock: Buffer stock to protect against demand variability and supply lead time variability
- ABC analysis: Classify products by sales velocity — A items (top 20% by volume, 80% of value) need tighter management than C items (long tail)
- Dead stock: Slow-moving and zero-moving inventory — identify early for markdown or write-off decisions
Demand Forecasting
Accurate demand forecasting reduces both stockouts and excess inventory. Methods range from simple moving average to statistical time series models (ARIMA) to ML-based forecasting. Key inputs: historical sales, seasonality patterns, promotions calendar, new product launches. Tools: integrated in most ERP and inventory management systems; specialist forecasting tools for complex catalogues.
Inventory Visibility
Real-time inventory visibility across all locations (warehouse, stores, in-transit) enables: accurate availability display on the website, efficient order routing, and proactive stockout prevention. Inventory inaccuracy — physical stock doesn't match the system — is a significant problem in many retail operations and requires regular cycle counting to address.