Before the excitement of snagging a highly anticipated item at a great price or unwrapping holiday gifts kicks in, we start planning and strategizing well in advance. The goal is to ensure that we can meet the high expectations and demand of the season without going overboard.
Though there are many times we wish we had a crystal ball, luckily, we don’t generally need one to prepare for a seasonal surge in demand for a certain product or service.
There are highly reliable forecasts available that are based on factors such as economic trends, consumer behavior, and inventory KPI tracking that indicate for us with a high degree of confidence when to expect a peak that we should be prepared for. If your business deals in trading goods, one of the challenges you face in preparation for that peak will be anticipation inventory.
A brief explainer of anticipation inventory
Much like the name indicates, this concept refers to goods that are purchased by a business in anticipation of a significant rise in demand for them. Although this acquisition happens some time before the demand for that particular inventory actually rises, anticipation inventory refers specifically to items or categories of items for which there is a highly reliable forecast of trends.
For instance, we can confidently count on the fact that there will be an acute interest in Halloween decor, pumpkin pies, scented candles, Christmas ornaments, and highly valuable Mariah classics at certain times every year.
Do you need to carry anticipation inventory?
If you trade in inventory that sees seasonal fluctuations in demand and if your business goals include maximizing sales and consistently meeting customer demand, then anticipation inventory is for you. Any foreseeable spike in demand is an opportunity to boost sales and increase profitability. And, if you get the numbers right, it will be worth the effort and preparation to navigate anticipation inventory-related challenges.
However, there are other scenarios outside of holiday shopping surges that can create the need for holding some quantity of buffer items. This also creates another kind of anticipation inventory, one that is generally referred to as safety stock.
What is the difference between anticipation inventory and safety stock?
Although both terms refer, in essence, to holding extra inventory in preparation for a future need, there are some differences to consider.
For example, while anticipation inventory purchases are designed to meet expected future demand, the purpose of safety stock is to guard against fluctuations in demand or supply that might affect timely order fulfillment going forward. And, while you base anticipation inventory on forecasts of future sales, the basis for safety stock is historical data and analysis of potential disruptions in supply.
Another key difference refers to when you are likely to stock up: whereas you would typically purchase anticipation inventory at a certain time in the year before your forecasted seasonal demand materializes, safety stock is something you would need to acquire on an ongoing basis to maintain a certain buffer level.
There is, of course, also some difference in the risks associated with each — with anticipation inventory, one of the major risks is that the future demand it is meant to meet might not actually happen. Meanwhile, safety stock addresses a demand that is continuous, but it incurs an increase in carrying costs for your business.
Both cases, however, pose the same challenge of delicate balance: while you want to hold enough inventory to meet as much of the demand as you can in a reliable and timely fashion, you want to do so without ending up overstocked and/or suffering unnecessary carrying costs.
Use cases for anticipation inventory
If you know your market and your customers and you can expect a certain level of demand ahead of time, you want to ensure that you have sufficient stock to efficiently meet the needs of your clients. In times of peak demand, whether expected or not, it will help you prevent stockouts and avoid losing out on potential sales.
With a good anticipation inventory strategy, you can maximize the profitability of a promotional campaign. For example, if you have been successfully building up hype for the launch of a new product, you’ll want to make sure you are prepared to meet the initial surge in demand and not miss out on potential orders due to delays in delivery.
Businesses that have a good understanding of their demand patterns are in a better position to take advantage of price discounts or closeout sales offered by their suppliers. This would allow you to secure anticipation inventory at a reduced procurement cost.
Key advantages of carrying anticipation inventory
- If you anticipate correctly, some of the first advantages you benefit from are customer satisfaction, loyalty, and perhaps repeat business.
- What’s more, you can successfully avoid missing out on revenue opportunities because anticipation inventory hedges you against stockouts.
- Depending on the industry, anticipation inventory can help improve your supply chain management, as it smooths out fluctuations in supply as well as better managing demand uncertainty.
Challenges and disadvantages of anticipation inventory
As with any important strategy in business, you need to also consider that anticipation inventory can come with some drawbacks and carries the risk of potential losses.
Carrying costs and added financial risk
Holding buffer inventory necessarily means expenses associated with storage, handling, and insurance. In some cases, it might also draw costs related to potential obsolescence. If your forecasts are off and you do not move your anticipation inventory as expected, the added costs can significantly erode profits.
Additionally, this inventory means tied-up capital. Depending on your resources, anticipation inventory might make it difficult for you to respond to unexpected opportunities or to access financing.
More complex inventory management
With anticipation inventory and safety stock, you are adding separate tiers and levels to the inventory that you need to manage. Without the right tools and resources, it can be difficult to manage the added complexity, and you might find yourself dealing with lapses in monitoring and inaccurate inventory counts.
Refine your anticipation inventory strategy with Katana
Employing specialized software solutions can greatly enhance your performance and save you valuable time and resources. Katana’s cloud-based software offers a wide range of features that help you navigate the increased complexity of a growing business while keeping it simple for you.
With real-time inventory management, you can count on reliable visibility of all your stock levels. By centralizing inventory data, Katana helps you reduce the risk of data discrepancies across different teams and locations of your business.
What’s more, you’ll find inventory forecasting tools available to facilitate your predictions of demand and help you make well-informed decisions about what your optimal stock levels should be.
The wide range of built-in integrations also makes it easy to connect with the software solution you already use, further automating your processes and saving time and money.
Reach out to our sales team to request a demo and see how you can optimize operations, manage all your sales channels, and more with our flexible, powerful, and enjoyable cloud inventory software solutions.
