Inventory Planning Techniques
Inventory planning is essential. It is an art that if it’s done right it can help boost a business’s profits.
In this blog post, we will explore the importance of inventory planning, the techniques to implement it effectively, and the various methods that businesses can use.
What is Inventory Planning?
Inventory planning involves making informed decisions about the following:
- how much inventory to keep on hand,
- when to reorder, and
- where to store products.
Proper inventory planning requires analyzing demand patterns, sales data, lead times, seasonal changes among other factors to find the optimal inventory quantity.
Why Do We Need Inventory Planning?
Inventory planning ensures that companies are able to meet customer demand minimizing stock outs and also controlling inventory holding costs. According to the survey of SMEs, Statista states that “the companies that had good inventory management practices have delivered more of their output on time.”
Having a crucial role in the overall company’s supply chain and financial management, it’s no surprise that proper inventory planning provides many benefits to companies such as:
Maintaining excess inventory ties up capital and storage space, leading to increased carrying costs. Whereas understocking can result in missed sales opportunities and decreased customer satisfaction.
Optimizing inventory levels enables companies to reduce storage, insurance and obsolescence costs. Thus improving the cash flow and profitability.
Satisfied customers= Having the right inventory when customer orders to buy it.
Determining the optimal inventory ensures that the company has enough inventory available when the customers order from it. Hence ensuring customer loyalty.
Accurate inventory planning relies on understanding historical demand patterns and predicting future demand.
By studying market trends, seasonal variations, and customer behaviors, inventory planning can improve the accuracy of the demand forecasting. And what are the benefits of accurate demand forecasting? A more close-to-reality demand forecasting enables companies to make more informed decisions about the inventory replenishment, product assortment and promotional activities.
Improved Supply Chain Management
Inventory planning allows better coordination with the supplier. The overall supply chain efficiency improves as a result of reduced lead times and optimized order quantities.
Inventory Planning Challenges and How to Overcome Them
Sudden spikes or drops in demand are called demand volatility. It can lead to companies either overstocking or stockouts. Demand forecasting can help mitigate the risk of loss due to demand volatility.
It’s common especially for Amazon sellers to witness supplier delays. Large companies usually have alternative suppliers to overcome this issue. However, if you depend on a handful of suppliers then its best to maintain an open communication with your suppliers to remain updated on production and delivery schedules.
Impact of External Events
External events are usually out of the hands of the company. They cannot be controlled or even predicted sometimes (read Covid!).
Companies especially SMEs find inventory planning hard in times of uncertainty (such as, during times of Covid 19). Harvard Business Review published a recent guide discussing a new and inexpensive approach to inventory planning especially when the demand is uncertain.
How to Do Inventory Planning?
If you are new in the business then it’s best to purchase small quantities of products (inventories). In the beginning it is not really worth it (according to us, atleast) to fall for deals and buy in bulk. So, a supplier offers you 25% to purchase 2000 units. Don’t go for it, just yet.
1. Review Past Sales Data
As your business grows you will have enough data to make inventory planning decisions based on that. Analyze how the demand for your products is varying in different seasons and categories. Notice any particular trends for your products. Reorder what is selling and refrain from ordering what is not selling.
2. Forecast Sales
Based on the past sales data plan the inventory that has to be at your warehouse at all times. This requires considering the number of days of supply, changes in demand, lead time, and regularly monitoring inventory.
Various forecasting methods, including qualitative and quantitative techniques, can be employed to predict demand accurately.
3. Inventory Planning Software
Inventory planning is not a one-time task; it’s an ongoing process. Regularly review and adjust your plans to account for changing market conditions, trends, and other variables.
WA: Your Partner in Achieving Optimal Inventory Management
Companies worldwide often struggle with inventory planning. Despite investing in the most top-notch forecasting tools and methods your company may still not be predicting demand accurately. The reason? The reasons can be lack of expertise and resources.
Fluctuations in inventory levels lead to overstocked items that tie up one’s capital. On the other hand, understocked items lead to lost sales and not to forget the dreaded unsatisfied customers affecting your consumer loyalty. (Oh, the horrors.)
To summarize, inaccurate forecasting leads to poor inventory decisions, which in turn results in financial losses and a diminished reputation in the market.
Work Accelerated provides trained inventory professionals and technical advice to help you achieve optimized inventory levels, and reordering and holding costs.
WA’s experts bring the latest industry best practices to the table hence eliminating the erratic fluctuations in your inventory levels leading to more efficient operations.
This guide discussed how inventory planning is all about finding that sweet spot for your inventory. It is an art that allows companies to make smart informed decisions at the right time about: what inventory to stock, when to reorder and where to store the inventory. Proper inventory planning has many benefits such as optimizing costs, satisfied customers, supply chain efficiency with optimized order quantities and accurate demand forecasting.
Companies often struggle in inventory planning and predicting demand accurately. The reasons can be due to a lack of expertise and resources. But there is nothing to fret just yet! Work Accelerated (WA) has your back. WA can provide you with the expertise and resources to optimize inventory levels, reduce holding costs, and bring industry best practices to the table. Say goodbye to erratic inventory fluctuations today!