Demand Forecasting for Amazon Sellers
The health crisis caused by Covid-19 has given online buying and selling a decisive boost, even overcoming the reluctance of many traditional consumers to use digital payments. “Needs must,” as the saying goes—and it has proven true. Lockdown, store closures, and fear of going out have driven online sales to levels not seen before.
Stock market falls have been widespread across all sectors of activity, although marketplaces have shown a marked upward trend, making the most of it in March and April. One of the best-known and most widely established sales and distribution platforms is Amazon. Many sellers take advantage of its powerful infrastructure and impressive logistics channel to sell their products, benefiting from one of the most powerful marketplaces on the planet.
What should you consider when selling on a marketplace?
When embarking on the adventure of becoming an Amazon Seller, the first question that arises is: How much stock do I need to guarantee the required service level? And it is not a trivial question.
As we explained in previous posts, to get the highest possible return from our business it is very important to avoid running out of stock (stockouts), which would prevent us from meeting customer requests or would delay fulfilment; and also to avoid overstocking, a poor ally for any business, which takes up warehouse space and ties up capital, with the resulting financial impact.
But how can we know what turnover our products will have in Amazon’s global storefront in order to adjust stock levels? By getting ahead of demand with reliable demand forecasting solutions. Predictive analytics enables companies to anticipate the future to make better decisions, improve efficiency, and reduce risk.
At LISDATA, we help our clients visualise what lies ahead. Through the FRIGG tool, based on Advanced Data Analytics, Business Intelligence, and Artificial Intelligence, we generate future scenarios that provide valuable insights to reduce the uncertainties inherent in any business, design the right strategies, and plan efficiently.
Having accurate demand estimates for each product offered on Amazon enables the seller to maintain optimal stock levels that guarantee service levels and business profitability—essential variables, especially in the uncertain market in which we find ourselves.
How does a demand forecasting tool work for a marketplace like Amazon?
First: Connection to the Amazon API
Once connected to the API of the digital retail giant, we can obtain a summary of all our sales, as well as valuable information such as number of visits or time spent on our products, among many other variables. All these data, processed with demand forecasting solutions, will allow us to obtain reliable forecasts of stock turnover.
Second: Algorithmic engine
Once the necessary information has been obtained, we will use an algorithmic engine to carry out time-series forecasting. Each SKU has an associated time series that can be predicted by analysing a wide range of factors (trend, seasonality, data volume, etc.). This diversity requires multiple algorithms to achieve the best possible forecast. With the FRIGG tool, we can forecast time series using more than 10 algorithms and select the best result, which will also enable the best planning. In addition, the tool itself assesses the health of our stock and determines purchasing needs, ensuring control of our SKUs.
Third: Forecast visualisation with Business Intelligence tools
To make it easier and more practical to use the information, we create user-friendly environments through Business Intelligence tools to work with the results obtained. Forecasts must be useful and easy to work with to achieve optimal results, so we set up dynamic filters that allow us, for example, to filter information by SKU, supplier, or market.
Fourth (optional): Purchase automation
With the forecasts produced and displayed in an easy-to-view environment, we have a clear estimate of our future sales; and if we combine that future with the present, we can automate purchasing. Let us explain in more detail: if I know what I am going to sell (forecasts), I know my stock levels (what I currently have in the warehouse), my suppliers’ lead time (delivery time) and their quality (whether they meet deadlines, whether there are supply issues, etc.), I can automate purchasing in the ERP, using information from the established purchase lot, projected consumption formulas, and safety stock and buffer stock criteria. In this way, we will achieve efficient purchases aligned with the organisation’s needs without having to constantly monitor SKUs, since it is done automatically.
Conclusion
Companies always face demand variability, influenced by multiple exogenous factors, which makes it complex to maintain optimal SKU levels. To embark on the adventure of becoming an Amazon Seller and succeed, it is essential to determine the amount of stock needed to guarantee the required service level, without falling into overstocking or stockouts.
Proper inventory management is essential to avoid risk, tied-up capital, or customer loss, and the best way to achieve that desired control of SKUs is to have a reliable demand forecasting tool that allows us to anticipate customer requirements.