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What is seasonal demand?
Seasonal inventory refers to products that sell at a higher velocity during particular times of the year. For example, most companies experience an influx in seasonal demand during the holiday season, and many may stock holiday-specific SKUs that they don’t sell year-round. Other brands may experience seasonal spikes according to changes in weather, sports seasons, or secondary holidays such as Valentine’s Day or Mother’s Day.
Take advantage of peaks in demand
Forecasting for seasonal variances will ensure you have sufficient levels of stock available to take advantage of increases in product demand at peak times of the year. If you rely on your busy seasons to make the most of your money, you must be on top of your game and ensure optimum product availability.
Prevent excess stock levels
Equally, it’s important that you don’t want to over-forecast for seasonal demand fluctuations. Investing too much money in inventory can lead to cash flow problems and an unhealthy balance sheet. If you have excess stock at the end of a season, you face the dilemma of selling it off at a discounted rate or taking on the burden of inflated carrying costs until demand picks up again.
Seasonal methods for managing inventory
There are five primary methods for managing inventory, and any of them could be appropriate for managing seasonal inventory, depending on SKU profile, sales velocity, and current business operations.
First in First Out (FIFO): The FIFO inventory method works by using the oldest inventory (first in) to fulfill orders first (first out). The FIFO method is appropriate for perishable and highly seasonal products and can increase margins on items that experience price hikes during times of high seasonal demand.
Last in First Out (LIFO): The LIFO inventory method uses the newest inventory (last in) to fulfill orders first (first out). The LIFO method can be used to quickly recoup expenses on products acquired at a premium seasonal price, either at the raw materials level or as finished goods.
Just in Time (JIT): The JIT inventory method is the method most commonly used by SMB’s because it requires the least intensive demand forecasting. JIT supply chains are replenished on an as needed basis. They are a high-risk supply chain management strategy and can reward merchants with increased capital on hand. Still, as we’ve seen with recent supply chain disruptions, they can also leave merchants with empty shelves when seasonal demand hits.
Economic Order Quantity (EOQ): The EOQ method determines ideal inventory levels using three metrics: customer demand, acquisition cost, and holding cost. The EOQ method can drastically cut inventory carry costs but requires advanced demand forecasting models supported by a lengthy sales history.
ABC Analysis: An ABC analysis prioritizes SKUs by lumping them into three categories: A — high-value products with a low contribution margin, B — mid-value products selling at a mid-range velocity, C — high-velocity products with a low margin. An ABC analysis helps merchants prioritize the SKUs that ultimately drive their business’s profitability and may prompt them to reconsider their product profile entirely.
How are You Managing Seasonal Demand Forecasting?
Are you looking for a strategy that can help you improve your seasonal demand forecasting? #TeamTaylor can help. Contact us today to learn more about our data-driven warehousing and fulfillment services.