The importance of effective inventory management in powering incremental sales

Managing inventory levels is a crucial aspect of profitable growth for any brand—but did you know it can also power incremental gains? Being short on stock is one problem, but the opposite issue—overstocking—can be just as damaging to your bottom line with the costs of long-term storage in today’s environment of low supply and high demand for valuable warehouse space. The good news is, you can strike an ideal balance! It simply requires a seamless connection between your inventory system and marketplace listings, strong data consolidation, and a real-time understanding of the impact of your media investments.

Why brands need robust inventory management

Inventory management involves tracking and controlling the stock of finished goods, raw materials, and work in progress. It helps businesses maintain the right level of inventory, avoid stockouts or overstocking, and improve cash flow.

One of the primary reasons why managing inventory levels is important for profitable growth is that it helps businesses avoid stockouts. A stockout occurs when a customer orders a product that is out of stock. This can result in lost sales and revenue, as well as damage to the brand's reputation either via word of mouth or via trade partner internal ranking. In particular, Amazon’s algorithm for ranking product listings is driven by page views, conversions, and sales. This means if you have an out-of-stock item, Amazon will lower its organic ranking.

On the opposite side of the spectrum, overstocking can also be a problem for businesses. When businesses hold too much inventory, they tie up valuable resources such as cash and warehouse space. This can increase carrying costs—warehousing, insurance, and handling fees—and reduce profitability. Additionally, overstocking can result in outdated or obsolete inventory, which can cause write-offs or incur disposal costs to get rid of it. By managing inventory levels effectively, businesses can avoid these problems—including potential brand damage—and ensure that they are only holding the amount of inventory they need.

The importance of centralized data for promotional alignment

When something as little as a paid product placement on an influencer’s story can wipe out your inventory, accurately predicting inventory demand can save you from delivering a poor customer experience via out-of-stock products or sitting on a pile of excess inventory that eats into your profit.

Centralized forecast data fosters cross-functional transparency and collaboration, allowing you to better prepare for seasonal spikes, align inventory availability with marketing campaigns, and track changes in demand. No need to worry about shoppers seeing out-of-stock items or wasting marketing dollars on low-demand products. Brands that can analyze the impact of their promotional efforts on-demand at a campaign and stock-keeping unit (SKU) level and adjust their inventory levels accordingly can ensure that they can meet customer demand while maintaining profitability and achieving incremental growth.

Here are three steps for aligning your data, promotional activity, and inventory:

Step 1: Aggregate and harmonize data across channels and functions

Incremental enables sellers to cleanse, standardize, and merge inventory, retail media, and marketplace sales data in a single platform, breaking down silos to get a unified, single view of your business for sales, finance, marketing, and operations. With all of that data (across channels and functions) consolidated and mapped—even down the SKU level—you get the interconnectivity you need for accurate predictive modeling and forecasting.

Step 2: Demand forecasting to protect sales and maximize ad spend

Being short on stock has multiple negative outcomes on your business. First the obvious one: losing customers and sales. While the latter might be the more immediate concern, disappointing customers has a long-term impact on loyalty, which erodes the lifetime value of each customer as they try new competitors or switch brand allegiance.

Inaccurate or delayed forecasting also wastes ad dollars. Insights into future forecasted sales empower brands to automatically know when to pause their paid media campaigns. This slow demand adjustment mitigates the risk of a stockout and enables the brand to temporarily redirect ad budgets to other products or other marketplaces that will benefit from that investment and have a higher incremental ROI (iROI).

Step 3: Reap the long-term benefits of machine learning

Forecasting is essential for businesses to quickly adapt to short-term changes in consumer behavior. The Incremental forecasting algorithm, for example, takes into account external factors that most algorithms calculate, such as weather, consumer trends, and local economic indicators. But it also can “see” the entire value chain of your business, so forecasts and purchase order predictions extend across all channels—not just a single channel—so you can redistribute as needed.

Outside of the speed of AI (e.g., real-time), the other primary benefit is its ability to remember. That is, when trends are tracked over time, AI notes consistent increases in consumer demand such as spikes that occur at predictable moments during the year. These increases or decreases are not one-offs, but rather enduring consumer behaviors, and brands can use these to inform future operations such as increasing replenishment orders in order to capture incremental lift that may not be obvious to channel planners.

While these might seem like small adjustments, the results build over time, helping brands capture market share, increase cash flow, and create positive consumer experiences to fuel the long-term growth of the business.

Anticipate demand and manage inventory with intelligent forecasting

Forecasting plays a critical role in helping brands prepare for better inventory management. By analyzing historical data, market trends, and other relevant internal and external factors, businesses can forecast demand for their products and plan their inventory levels accordingly. By leveraging forecasting tools and incremental sales modeling to understand external factors contributing to sales lift, businesses can make more informed decisions about their advertising spend in coordination with inventory levels, which can lead to sustainable and profitable growth over the long term.

Ensure that your team is making data-driven decisions about their promotional budget and spending in relation to inventory levels. Ultimately, businesses that prioritize inventory management will be better equipped to achieve sustainable growth and profitability over the long term. Talk with us today to learn more about our forecasting and incremental modeling products.