E-commerce Inventory Forecasting in Shopify: A Strategic Guide with Monocle

Building a successful ecommerce store is an impressive accomplishment, but the more successful your store is, the more challenging ecommerce inventory forecasting becomes. More orders to your store means more orders to forecast, and this can often mean more hours spent manually forecasting in spreadsheets for you or your team. If you aren’t using a spreadsheet based inventory forecasting process then you may simply be guessing what to order for your store and when. Neither of these methods can truly prevent your store from losing sales due to out of stock products or losing money ordering too much of a product that doesn’t sell. 

However, a proper ecommerce inventory forecasting process isn’t just for top earning stores though. It could also be the missing piece for store’s that have yet to reach their profitability goals. It saves money on storage, prevents missing out on sales (even during the holidays), and puts time back in the store owners hands so they can focus on growth. This is crucial for stores looking to level up in profitability. 

We know the impact inventory forecasting can have on a store which is why we created the Shopify App Monocle to completely automate all the benefits of inventory forecasting so Shopify store owners don’t have to spend hours to days every month doing it themselves. 

Our new users have no trouble seeing the benefits of inventory forecasting during our 14 day free trial, and complementary onboarding call with our founder,  but if you aren't a Shopify user, allow us to show you what inventory forecasting can do in this guide. 

What is E-commerce Inventory Forecasting?

E-commerce inventory forecasting or E-commerce stock forecasting is the process of predicting the right quantity of products to keep in your store’s inventory to avoid overstocking or shortage a.k.a “stockouts”. It is based on sale history, trend analysis, and upcoming events for a store. Monocle’s algorithms analyze these parameters to attain the most precise forecasts. These forecasts prevent a stockout and lessen carrying costs for the products that did not sell. The accuracy of this database is a key factor for Shopify shop owners to achieve the right inventory level and consequently increase their operation efficiency as well as customer satisfaction.

The Impact, Importance, and Benefits of Ecommerce Inventory Forecasting

Accurate inventory forecasting  can simply make a store more profitable and easier to run. This is especially true for stores with different product categories and more than 20 SKUS in their inventories. The right automated inventory forecasting solution will be able to do the following for your store

Demand Prediction By The Exact Unit And Day:

Ecommerce inventory forecasting gives store owners the capability of making the right predictions based on data from their entire order history to find patterns in it like when people buy more, or less, so you always order enough of each product; never too little and never too much. 

Monocle users can do all of this because Monocle visually breaks down what units they need to order, how many of each they need to order, and when with it’s automated reorder points and stockout alerts. This process is completely automated with Monocle and continuously ongoing with no effort needed by our users.

Anticipate Your Market’s Seasonal Trends & Complex Data Relationships:

The right ecommerce inventory forecasting software will be able to forecast ahead of time for seasonality, and ensure that your store is perfectly stocked for your busiest seasons. This will all be pulled from it’s analysis of your busiest seasons from previous years. 

Monocle’s AI-powered solution, and ABC XYZ analysis feature analyzes sales from your stores entire order history to ensure that you’re store always has the inventory it needs for any upcoming shift and that our users are always making informed purchase decisions.

‍Increase Your Operational Efficiency:

The right forecasting process or solution will increase the efficiency of your store. This is because once the right forecasting software is running, you no longer need to manually check on what products you need to order. This saves hours to even days a month for store owners who are using spreadsheets, or guesswork to determine what to order. 

At Monocle, we typically see our users get hours to even days per month back from using our Shopify App. Running all the necessary inventory forecasting calculations manually is very time consuming, and to properly do so could take days per month. Our solution, and solutions like it automate all the calculations needed for accurate forecasts.

Reduce Your Inventory Costs And Increase Your Profitability:

As we’ve already stated, ecommerce forecasting prevents store from having too much stock in their inventory, and this is just as impactful as preventing stores from having too little inventory and going out of stock. This is a benefit that can directly increase a stores profitability because it prevents a store from losing money on ordering inventory that never sells, and is costly to keep in stock.  

Monocle is a safeguard not only against stockouts but against overstock as well. Our easy to understand visual breakdown and alerts of what to order and when will also ensure you don’t order too much inventory or overstock. Monocle is also able to break down to users which products contributing little revenue, but have unpredictable demand making them costly to manage. We’ve seen users save tens of thousands of dollars for their store from this capability alone.

Challenges and Solutions in Shopify Inventory Forecasting

Inventory forecasting has many challenging elements, like seasonal fluctuations, accounting for the impact of promotions, and sudden changes in your store’s sales.

These challenges can be solved for with an inventory forecasting software that provides real time forecast adjustments each time inventory moves. This is difficult to do manually because it requires regular updating of the spreadsheets you use to track and forecast your inventory. If a product in your store starts getting more orders than usual, or your busy season starts you’ll need to manually update your data to get a proper forecast. Your past month’s sales data won’t give you the information and certainly not any alerts you need about what to order to stay in stock.                                                                                              

This is not a problem with a capable inventory forecasting software, and certainly not with Monocle. Monocle accounts for these challenges through the instant analysis of data and sale monitoring which guarantees precise adjustments of inventory strategies. The data calculated by an inventory forecasting software is always current, and this is the case with Monocle. Automated reordering and centralized purchase order management are the essential features that will simplify procedures and help businesses respond quickly and effectively react to any market changes.

Monocle’s AutoML shines against the following challenges:

Random Spikes In Demand: 

A product in your inventory gets tagged by an Instagram influencer and now units are flying off your shelves. A scenario like this is difficult to account for with manual inventory forecasting solutions like Excel but Monocle’s AutoML can handle this data with ease. 

Sales Peaks Of All Kinds:

Monocle is ready to forecast your store's busy seasons and busy times of the week. Holidays and the like are not easy to forecast manually but are no match for Monocle’s AutoML. 

And many other scenarios that could typically spell a stockout or overstock for a Shopify store. 

Understanding the Demand Forecasting Process

Accurate demand forecasting is highly dependent on the diligent study of the following factors. They are:

Your Complete Order History:

Historical sales records, your store’s trends over the course of your order history, and customers' orders throughout the history of your store or at least your last 3 years of business. 

Lead Time Of Your Supplier:

Simply put, this is how long it takes your supplier to get your inventory to you.

Sales Peaks & Seasonality:

Calculating factors like seasonality. 

SKU By SKU Analysis:

Calculating the sales patterns of all SKUs in your stores inventory. 

Real-Time Data Adjustments:

Adjusting the forecasts based on real time data changes such as increases in sales velocity. 

These calculations can be made manually, but doing so would be time consuming, and potentially inaccurate if mistakes are made. In a spreadsheet you’d need to calculate 3 years of order history, how long it takes your supplier to deliver products, calculate your seasonal fluctuations, and then do this for every SKU in your inventory. This is of course cumbersome, and time consuming while also carrying the risk of errors leading to lost sales and decreased profits.   

All of these calculations should be a breeze for an automated software. Monocle's system automates the forecasting process by incorporating all the above variables into a single model that makes future sales predictions with a very high level of accuracy. This is especially important for Shopify stores, where having the right inventory level is crucial to smooth operation. Monocle provides both lead time tracking and sales velocity analysis. This allows users to predict when the stock will deplete and plan their purchases accordingly.

A manual demand forecasting process is not optimal and often inaccurate for a store with more than 20 SKUs in its inventory. ‍

An automated demand forecasting process looks like:

Seamless Shopify Integration Or Integration With Your Store’s Platform: ‍

Monocle’s demand forecasting process begins in minutes once integrated with your Shopify store. Monocle is a turnkey e-commerce inventory forecasting solution.

AI Takes The Wheel:

Once your store is connected our machine learning algorithms begin optimizing your data. 

Data-Driven Forecasts:

Monocle uses the data it’s collected to forecast your inventory. Our forecast alerts are automated so you are always aware of the next steps to take with your store’s inventory. 

Types and Calculations in Shopify Inventory Forecasting

Monocle employs time-series forecasting models that combine factors such as historical sales, seasonality, and market trends to estimate future inventory requirements. The platform determines the reorder points and quantities, considering the lead times and safety stock levels to reduce the risk of stockouts. Using this method, Shopify merchants can maintain an effective balance between having appropriate inventory levels to meet their anticipated customer demand without committing to surplus stock.

Crucial inventory forecasting calculations made by Monocle are:

Safety Stock Calculation, ABC XYZ Analysis & many other simple and complex statistical models equipped for the unique needs of your market. 

Strategies for Optimizing Shopify Inventory Forecasting

An optimal inventory forecasting strategy not only minimizes the stock-related problems but of course serves the greater purpose of the organization which consists of cost reduction, customer service improvement, and increased profitability. Monocle provides SKU-level granularity and promotional forecasting which enables businesses to tailor their inventory based on granular data about each product's performance and the buying patters of the customers. These capabilities make it possible for Shopify stores to fine-tune their inventory in accordance with the strategies they create for business expansion, consequently guaranteeing the highest returns on the money invested in stocking their inventories.

One of the ways Monocle makes this possible:

Intelligent Product Associations:

Monocle's AI forecasting capabilities also offer Product Associations. This capability shows users which products in their store are frequently purchased together. They can then use this data to build promotions and guide their marketing efforts. Monocle is the only e-commerce inventory forecasting solution to offer this feature. 

See What Monocle Can Do For Your Shopify Store

In a competitive e-commerce landscape, Shopify store owners cannot underestimate the value of precise inventory forecasting. Monocle provides a user-friendly inventory forecasting system that is error-free, which in turn prevents stockouts and overstocking, ensuring your business continues to be productive and your customers are satisfied. Get started with Monocle today and get ultimate control over your e-commerce activities.

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