Advantages And Disadvantages Of Inventory Forecasting

Advantages And Disadvantages Of Inventory Forecasting

Most companies use forecasting methods to predict their business problems and outcomes. This process involves both data quantity and quality. Using the forecasting method can give a company many benefits, and you will immediately get some idea about the complexity and uncertainty of your business in the future.

What is Forecasting?

It is the burden of predicting what may or will not happen in the future by verifying all past and present events. This test makes it easier for businesses to deal with future uncertainties. A good plan is very important for businessmen because it is a lot of business to the next steps that will help you to create charts and budget, business movements, and projections about future trends or tips that will help you so much.

Advantages of forecasting

Gain valuable insight

When you make predictions about something, you need to look at its past and real-time data. As a result, it will become your habit. Using it, you can better estimate the demand for good and bad. Another good thing is that you can learn about the company and give insights.

Learn from past mistakes

Most of the time, your past forecasting may not be accurate. This will allow you to know and understand the reasons why your prediction did not come true. It would be right to make some decisions. This can be a powerful driver of your company and will improve your forecasting.

Decrease costs

Doing it right will help you improve your demand chain skills and understand how you can change the steps. Because you can understand what customers want and what they can ask at any time, you can easily understand these. As a result, you can reduce your excess inventory. This will reduce your costs a lot. Disadvantages of Forecasting

No one can say exactly what will happen in the future, only guess what. It may be that an unexpected reason has made your Forecasting useless. Below is a detailed discussion of the 3 main disadvantages of Forecasting ।

Improves Co-ordination and Control

Forecasting requires a lot of external and internal data later. All this information has to be collected from different employees step by step. So all the units of an organization are involved in this process. It allows for better communication and coordination.

Disadvantages of Forecasting

No one can say exactly what will happen in the future, only guess what. It may be that an unexpected reason has made your Forecasting useless. Below is a detailed discussion of the 3 main disadvantages of Forecasting 

Just Estimates

No one can tell the future in the right way. But it can be predictable. And a lot of things may or may not happen again. So we can say that Forecasting is a big problem.

Based on Assumptions

All types of forecasting processes are approximate. But this is not always the case. So we have to keep in mind the limitations of Forecasting and not be completely dependent on it.

Timely and resourceful

Forecasting involves collecting, organizing, and coordinating information. Companies hire planning teams to bring in forecasting. But to get this plan done right, planners need a lot of good input about sales and marketing. But that is not available at the right time.


You need to pay to hire a planning team. If you want to use good-quality tools, you may need to pay more. It may also cost some extra money to get all your data on time.

What is Inventory Forecasting

Inventory forecasting is an inventory-level process used to predict the future. This process allows you to manage purchase orders better. You can use inventory forecasting software to save time and reduce unnecessary expenses.

Advantages of inventory forecasting

Minimizes stockouts

It also gives you an accurate idea of ​​what products you may need in the future. As a result, you can understand at what time to stock and how much to order.

Holding costs

Having inventory storage space management allows you to know which products you need. And you bought the roses you required. As a result, your unwanted storage and costs are reduced.

Product waste

In this process, you will know which product is being sold more and which one is less. By doing this, your product will be less wasted.

Lead time demand

How long does it take for the seller to complete the order? To avoid stockout, give you a product forecast at any time. It’s called lead time demand. 

There is a Lead Time Demand formula that you can use to do this very easily.

Lead time demand = average lead time in days x average everyday sales.

 Sales trends usually increase or decrease over time. And this sales process is divided into micro and macro.

Setting rearrangement points

A reorder point (ROP) is the level at which stock replenishes. In other words, in this process, you can know or understand when to order a product without a shortage of products.  

ROP = (average daily sales x lead time) + safety stock.

You can easily find out when ordering products using this formula.

Disadvantages of  Inventory Forecasting

Inaccurate Operations Budgeting

The decline in company sales results in inadequate operational facilities required to meet product demand at this time. However, to solve this problem, you can use inventory forecasting software and Forecasting data.


If you do not properly project inventory requirements, you may run out of extra stock. By doing this, you will have to deal with the problem of overstocking and taking place.

Losing to Competitors

At present, business is competitive. If customers are dissatisfied with your product in any way, they will move away from you. And he will find your rival trader

Loss of Business Credibility

You may also lose the credibility of your business due to the wrong sales plan. If you fail to meet customer demand. But it can also be a very bad thing for your business.


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