Having the correct amount of stock is important for a small business. If you have too much, you end up with high costs of maintaining it and harming your cash flow. If you don’t have enough, you end up losing customers!
It is important to forecast demand and stock only as much as is necessary.
Why You Should Forecast And Stock Accordingly!
With the help of a forecast, you can figure out the trends in demand, project sales, and stock products accordingly.
In the absence of forecasting, you might end up with excess or less stock, leading to the following problems.
- Stocking above requirement increases your costs of warehousing and maintenance. It also means your cash is tied up, and cannot be used for other important purposes.
- Overstocking can be damaging if your products are perishable and there is a fluctuation in demand.
- A shift in demand, owing to changing trends, could be disastrous if you are overstocked/understocked. Forecasting helps to understand these trends in advance and protect against possible losses.
- You might need to get rid of excess stock by offering them at reduced prices – leading to a fall in profits.
- Having less stock could result in loss of sales, loss of customers, and eventually, a decrease in profits.
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