Inventory management and forecasting

Inventory Management

Inventory management is the process of ordering, storing and using a company’s inventory, which can include raw materials, parts, and finished products.
It’s crucial to not have too much or too little stock. Too much stock means money tied up in storage costs, risk of waste from perishable items going bad, and cash flow being restricted. Too little stock can result in loss of sales and reputational damage if you cannot fulfil orders.
First-In-First-Out (FIFO) is an important principle in inventory management. It means that the first items that are added to the inventory are the first ones to go out to the kitchen. This is particularly important for perishable goods to avoid wastage.
Tracking your inventory can be done manually or through an inventory management system. The latter can provide real-time updates, make tracking easier and reduce the risk of errors.
Regularly conducting physical inventory counts is a good practise to ensure the accuracy of your inventory records and to identify any issues such as waste, theft or inefficiencies.

Demand forecasting is the process to estimate the quantity of a product that customers will purchase in the future. This is crucial in the context of a kitchen to ensure you have the right quantity of each ingredient.
Making accurate forecasts requires taking into account factors such as seasonal variations, promotional activities, pricing changes, market trends, and historical sales data.
There are various methods to do forecasting including qualitative forecasting (such as expert opinion, market research) and quantitative forecasting (such as using historical data and statistical techniques).
Regularly review and adjust your forecasts as new sales data comes in and as market conditions change. It’s unlikely that a forecast will be perfect, so planning for some level of uncertainty is good practise.

Good inventory management and accurate forecasting are tightly linked: the goal is to have just enough inventory to meet demand, but not so much that it leads to waste.
Using forecasts to plan your inventory levels can reduce costs (from storage, waste, etc.), improve cash flow, increase sales (by avoiding stock-outs) and enhance customer satisfaction.
Combining the two can highlight issues such as persistent overstocking (the forecasts are consistently too high), recurrent stock-outs (the forecasts are consistently too low), or large forecast errors (the actual sales are frequently far from the forecasts). These issues can then be addressed to improve the overall efficiency and effectiveness of the supply chain management.