Forecasting sales and inventory management are two components of demand management because between forecasting sales and inventory management there is a direct relationship.
Forecasting is needed to make decisions about resource allocation. Accurate forecasts drive better resource allocation and, as a result, help to improve financial performance by decreasing the amount of inventory that a company must carry. Forecasting future sales by using past sales data allows companies to define the inventory level (for each item) they should support in the storage to satisfy customers' needs. Therefore, forecast accuracy is one of the keys aspects enabling the company's growth and success.
Along with forecasting, inventory management is a comprehensive and very important process that influences the financial situation of the company and the business whole. Moreover, inventory management is the most important arm in the supply chain because of its overall effect on company profitability.
Businesses are in a continual state of motion which paces has accelerated in recent years. Today, forecasting sales and inventory management are a foundation upon which companies plan their business activity regarding the market and revenue projections.
The forecasting process's accuracy can cardinally influence your business profitability in a good sense. Predicting future demand is a critical element regarding sales assumptions, costs, and profits. At the same time, predicting future sales is the starting point of business planning, including defining the needed inventory level and purchasing.
To know what level of inventory should be in stock, you need to start with the forecast of sales for the coming one, three, six, or twelve months based on past seasonality and velocity of product sales.