Forecasting Demand Part 2: What to Do If You Over-Forecast or Under-Forecast

Though you understand the importance of demand forecasting, you might think that it’s a waste of time during periods of volatility. If things are almost certain to change, why take the time to try and make predictions? 

But in times of uncertainty, having a plan in place to forecast inventory is more important than ever.

Tough times won’t last, but prepared businesses do. Preparing your e-commerce or consumer packaged goods (CPG) business to outlast supply chain disruptions needs to be an essential part of your planning.

However, over-forecasting and under-forecasting is bound to happen, especially in a challenging market. Before I dive into what to do when your demand forecasting is off, let’s quickly explore why it’s so critical in the first place.

How Demand Forecasting Helps Your Business

When you forecast trends and make projections for your business, you’ll be able to weather whatever storms develop from uncontrollable factors. The key benefits of demand forecasting include: 

• Mitigating risks

• Enhancing resource allocation 

• Optimizing inventory

• Boosting the customer experience

• Improving labor management 

With demand forecasting, you’ll maintain amazing service to your customers and manage supplier relationships with grace and heightened accuracy

If you’re stressing about what to do when you try to forecast inventory and are still left with too much or too little product, read on and stress no more! I’ll start by highlighting some of the key fundamentals of supply and demand and then share some strategies you can put in place ahead of time to prepare for supply disruptions when both supply and demand change.

How Does Supply and Demand Work?

Supply and demand are essential principles to understand, especially when you’re demand forecasting for your business. In simple terms, demand is how much of a given product customers are buying, while supply is defined by how much of that product vendors are able to offer. When these two are out of balance, it can lead to over or under forecasting for your business.

By staying on top of market trends and planning ahead in your business, you can forecast inventory with better accuracy and more effectively respond to drastic market changes with minimal impact on your business. 

The following tips will help you plan ahead for the very real possibility of incorrectly forecasting in your business.

Strategies for Under-Forecasting

So, let’s say you under-forecasted, even though you did everything in your power to check in on marketplace demand ahead of time. Items are now sold out, raw materials are delayed, and you’re unable to fulfill orders for customers. Here’s what to do next:

• Clearly label out-of-stock items on your site. This will avoid further orders coming in and will manage customer expectations.

• Provide estimated dates for restocks when possible. If you know for sure when items will come back, feel free to tell your customers! But if you’re not sure, be transparent. Tell them you don’t know when you’ll get another shipment, and that you’ll communicate again when you do have a date.

• Allow customers to join a waitlist. Supply issues are happening all around the country, and customers are likely used to delays. Give them an opportunity to sign up for a waitlist so they’ll be first to be notified when the items are ready for purchase again.

• Use clear and positive messaging. You don’t have to be overly formal. Something like, “Our customers loved this so much we sold out!” gets the point across and also builds anticipation for your upcoming restock.

• Use rush orders. It might be worth the investment to get customers their products fast once supply is back up. They’ll remember that you made the effort to get their rush orders to them resulting in stronger satisfaction and loyalty!
  

In summary, the most key approach for under-forecasting is speaking honestly with your customers.  Even if you don’t have all the answers or dates your customers are looking for, letting them know you’re working diligently on it and that you care goes a long way. Customers will remember how you handle problems. 

Strategies for Over-Forecasting

Over-forecasting can be as much of a stressor as under-forecasting. What to do with all that product backstock? And what if there are perishable items? Take a few deep breaths—you’ve got some options.

• Launch a creative promo. While marketing and pricing discounts do cost money, you must also weigh the cost of storage and logistics for all the extra product. Would you rather spend money on storage or getting as much product as possible into your customers’ hands?! Running a fun ad campaign or mixing up your messaging can be a way to get some new eyes on your product.

• Bundle it up. Consider offering unique bundles that include the product you’re trying to move with other popular items. If you have a product you know people love, consider bundling your extras with it at a reduced price.

• Collaborate with other brands for promos and sales. Connect with other brands for promos and sales. A promo doesn’t have to be a discount, and collaborations can be a win-win for both of you as you get to connect with each other’s loyal customers.

• Donate to charity. Sometimes you just can’t get stuff off the shelves or into e-carts fast enough. If that happens, consider selling it close to cost to a resale organization, giving perishables to a food pantry, or even donating products at no cost to community events. It might not be ideal for your bottom line, but people will associate your brand with community-forward values.

Of course, you want to meet your revenue goals. But having a plan in place to turn a tough situation into a win, even if it’s through increased positive press exposure, is essential in managing over-forecasting. With these strategies in your back pocket, you’ll never be scrambling last minute to find a workable solution to your demand forecasting challenges.

Let Virtual Sidekic Take Demand Forecasting Off Your To-Do List

I hope you now feel more confident about demand forecasting for your business, regardless of its outcome. As an e-commerce or CPG business owner, you’ll always have the ability to take challenges and turn them into opportunities. The better you’re able to plan ahead, the better positioned you’ll be to outlast tough circumstances. 

If you’re not sure where to start with demand forecasting or just don’t have the time to properly forecast inventory, I’ll take it off your hands so you can use them on the parts of the business you love. Though I can’t predict when things will finally stabilize, I can help you manage supplier relationships, create customer service SOPs, and prepare your business to navigate the unexpected. Schedule a call with me today!

see how I can help you and your business thrive (and not just survive) during challenging times.