Inventory PlanningInventory planning is essential in supply chain planning. It helps organizations purchase the right amount of stock and determine how often to reorder. Inventory planning helps companies lower the cost of keeping items in stock while ensuring there is enough stock for producing and selling goods.
Companies hold inventory in the form of raw materials, finished goods or works-inprogress used in new goods. Retailer stock finished or processed items to sell directly to customers. Inventory planning is the art of balancing the amount of materials and goods on hand (the inventory) with the amount of customer demand without over stocking. Holding inventory affects the cash flow and profits of a company. Having unused inventory on had ties up a company’s cash.
Customer Satisfaction
Businesses strive to achieve the highest level of customer satisfaction. Having inventory on hand for customers plays a big part in customer satisfaction. If the right product is not available at the right time, customer loyalty suffers and your brand can be damaged.
Forecasting
Forecasting is a systematic process of predicting future sales and, thereby, future inventory requirements. In forecasting, marketing plans, sales plans and promotions should all be considered.
Controlling Costs
Inventory costs, or holding and storage costs, can total 20-30% of your business costs. Holding costs can include the purchase cost for items, taxes, labor to receive and place inventory, insurance, security and even stock obsolescence, which is stock that is out of demand, old or in excess. The goal of inventory planning is to reduce all these costs.
Efficient Storage
With well-designed storage facilities and by iterating the layout and design over time, you can favorably impact the bottom line. The ultimate use of inventory, whether in manufacturing, production or fulfillment, influences layout. The key point is to arrange high-demand items to reduce travel time. In this instance, high demand equates to frequently requested rather than high numbers of items.
Inventory demand forecasting is a method used to predict inventory levels for a future time period. It also helps keep track of sales and demand so you can better manage your purchase orders. It is a great inventory management tool that can increase your company’s revenue and decrease unnecessary costs. The benefits of inventory demand forecasting include:
Minimizes stockouts
Stockouts mean lost sales revenue. Inventory demand forecasting helps you avoid this by accurately predicting future demand. With this information, you can better understand when to restock and how many units to order.
Reduces inventory holding costs
Inventory demand forecasting helps with overall inventory management. It helps with inventory storage space management because you buy only what you need and stock only those products instead of ordering too much. This in turn reduces the unwanted storage space and the costs incurred along with it.
Reduces product waste
Inventory demand forecasting reveals which items are not selling or which are selling slower. Based on this, you can plan to re-purpose these items or bundle them with better selling products. This frees up warehouse space and increases revenue.
Inventory Planning Technology
You can use software that initiates orders to ensure you top off stock to the appropriate level and prevent overstocking. Digital planning systems provide historical data for forecasting and a view into current inventory levels. The right software can help you scale your business.
Inventory Planning Roles and Responsibilities
Inventory planners analyze trends and provide forecasts. Ideally, inventory planners work with supplier managers, purchasing and contract management leaders, supply chain financial analysts and production and quality control stakeholders.
Inventory Planning Policies, Processes and Procedures
Inventory policies help you govern planning activities and step-by-step inventory maintenance processes. It is essential that you define and document your inventory planning processes and communicate your policies throughout the organization and beyond, particularly to the supply chain. Your procedures can range from how you use enterprise resource planning (ERP) and other inventory software to how you store and pick items. Inventory procedures and checklists can help you guide warehouse and distribution center staff in handling inventory.
Despite the advantages of inventory planning, many organizations don’t do it. When companies don’t plan, the inventory planner or consultant often comes in like a doctor during a health emergency to deal with excess inventory or shrinking profits.
Good inventory planning provides many benefits. At a high level, understanding what you have today aids with forecasting for the future.
An inventory plan is an outline a business can follow daily. A plan helps an organization order, track and process stock. Ideally, you should follow the business goals as you create the inventory plan. Consider the following when developing an inventory strategy:
Product Volume
Forecasting demand is possible. Review historical data, market trends and future sales and marketing plans. Based on this research, schedule orders to build up stock when you anticipate high demand. Include items for off-peak sales.
Factors Impacting Inventory
Factors that sway demand include well-considered advertising, your competition’s price cuts and offerings, the income and context of your target market, seasonal demand, trends and customer preferences.
Warehousing
In a well-organized storage space, staff can easily place new deliveries and quickly pick items for fulfillment. The area should be large enough to accommodate extra stock when suppliers offer sales, but not so large that you have to pay rent and electric for unused space. The location of a warehouse can provide economic advantages; a warehouse located near a supplier may reduce shipping costs and allow you to receive materials before your competition.
Order Processing
Look for ways to improve the connection between inventory and order management.
Obtain executive buy-in and set measurable goals and KPIs to show results.
Decide where to store and process inventory. Keep perishables fresh and free of germs and infestations. Keep other stock clean and secure. Build a safe, comfortable area with the appropriate tools or equipment for unpacking, sorting or repacking.
Select an inventory management application. With software, you can record details of your inventory, order new inventory in a timely manner to prevent stockouts or overstocks and gain historical perspective on inventory trends. Not limited to enterprise-level programs, vendors also offer small-business licenses.
Create vendor agreements with your suppliers. Vendor agreements detail the expected payment and shipping arrangements. These agreements can also help you understand how soon you’ll receive a shipment after you place an order. Learn the vendor return policy for unsold items.
Determine the reorder point for stock. Use equations or look at historical patterns to determine turnaround time and the optimum level for each item or SKU. When deciding on a restocking trigger, build in the lead time for receiving new orders.
Raise inventory turnover. Inventory turnover is the number of times you sell out or replace stock items in a given period, such as a month, quarter or year. Generally, you want a high turnover. High turnover is essential for inventory with a low margin; low turnover is acceptable for high-margin items. One approach to ensuring high turnover is to practice lean inventory management—in other words, to order the least viable amount of stock. You can also focus on ordering high-demand products. Finally, negotiate with your suppliers to get the best wholesale prices.
Decide on a process for shedding unsold inventory that you cannot return. You can rid the business of excess stock through deep discounts or donations or by disposing of the items.
Develop your inventory strategy alongside your business plan, and make it a living document that employees use in the daily functions of the business. Update it regularly.
Execute the inventory plan. In today’s big-data, connected world, every manufacturing and distribution company must have the infrastructure in place to support detailed analysis and reporting from a user’s perspective of all aspects of inventory.