How to Avoid Inventory Planning Pitfalls

4 min read

Tags: Blog, Demand forecasting, Inventory management, Purchasing & replenishment, Technology

Daniel Fritsch   July 27 2015


Inventory Planning - time to plan

Index

  1. Why Does Inventory Planning Matter?
  2. Inventory Planning Best Practices
  3. How Inventory Controls Effect Inventory Planning
  4. Inventory Optimization for Inventory Planners

Inventory planning is defined as the optimal quantification and dispersal system arranged within a business to ensure alignment with sales demands and distribution capacity. Simply put, inventory planning and control is the process by which a distributor of goods ensures they have the right stock, at the right location, at the right time to meet customer demand.

A properly planned inventory stocking policymaintains stock at levels that are sufficient for the needs of the sales team, while ensuring that items are being reordered from suppliers based on safety stock requirements to avoid large quantities of overstocked items. Inventory should be fluid, constantly moving and maintaining sufficient stocks at all times, never running too high nor too low.

Why Does Inventory Planning Matter?

Inventory planning is essential to the smooth and successful running of any business and depends heavily on accurate predictions of future sales. These figures can be calculated from historical sales data, taking into account advertising promotions, planned expansions and new product introductions to the market place. With the introduction of digitization and cloud computing taking over much of the hard work, software can be utilized to perform these calculations easily and with speed while advising inventory managers on optimal ordering requirements.

Female inventory manager tracking inventory on an iPad

These calculations must be monitored closely, and adjusted with market changes. This means that if one previously popular product stops selling, re-ordering should be instantaneously reduced in order to prevent the build-up of a product that is no longer moving. Without adjustments, inventory managers can quickly find themselves sitting on a large quantity of excess stock or obsolete stock that will hinder the bottom line down the road.

Inventory Planning Best Practices

The inventory in stock should be carefully categorized for ease of location and storage. Many distributors operate multi-location operations, which can cause siloed or disparate data stores that can have a very negative impact on long-term profitability and growth potential. Investment into technology that can extend visibility supply chain wide while centralizing data and inventory management is the fastest way to align multi-echelon supply chain networks. More robust supply chains will often times invest into redistribution strategies to reduce their dependency on their supplier network.

When it comes to individual warehouse management, faster selling products should be more easily accessible within the warehouse and have a comfortable cushion in case of supplier delays, while slower moving products can be kept deeper in the warehouse, less accessibly as they are not required for restock as often. Sometimes it might even make sense for inventory managers to not carry items that have very low annual demand, as it is cheaper to rush order stock as opposed to incurring high carrying costs to hold the items in stock.

Seasonality of inventory and demand forecasting projections should be taken into account, and the inventory should be shifted or redistributed to best meet requirements. While inventory items should not be dramatically rearranged within warehouses, the inventory layout must be flexible enough to allow for new products introductions and changes in product demand patterns.

seasonality of inventory

Increasingly, inventory managers are leveraging software that oversees the whole inventory process to ensure optimization. The use of excess stock and obsolete stock reports help eliminate wasteful stocked items while historical sales demand reports help keep the right products in stock to ensure ideal inventory turnover of high demand inventory.

As mentioned, large swings in under stocking or overstocking particular items should be flagged and corrected on a weekly or monthly basis. Likewise, bottlenecks or delays in the business progress should be examined as these factors can all lead to profit degradation over time. Inventory planning should never be considered a stand-alone section of the business. Rather, it should be seen as the traffic network along which the processes and successes of the business as a whole can travel.

How Inventory Controls Effect Inventory Planning

Bearing in mind that a sizeable portion of a company’s cash is usually tied up in inventory, is it important to have strict controls on who has access to the stock. Careless controls and poor security can result in quick loss in profits and performance. Additionally, repeatedly reporting stock outs on items with high inventory turnover can lead to a loss in sales opportunities and even worse it can lead to customer attrition over time.

For industries with high value, smaller sized items such as high end computers, cameras or other electronics, security cameras and RFID tag monitoring systems can be put into place to discourage theft and can also lower insurance costs in some cases which helps reduce your overall carrying costs of inventory. All employees, whether they work with inventory or not, should have a clear understanding of the company policies regarding inventory control and management.

Regular physical stocktaking or inventory counts should be undertaken to account to insure inventory accuracy. While software can keep digital records of goods in and out, these figures should be confirmed with complete stock checks, anywhere from annually to quarterly.

Inventory Optimization for Inventory Planners

Most inventory planners today have Enterprise Resource Planning (ERP) or Warehouse Management Systems (WMS) in place to help manage inventory accounting, tracking, storage and purchasing. Very few of those inventory planners are happy with the stock keeping policies that are produced by ERP and WMS tools. Inventory optimization software is a software solution that acts as an add-on tool to help further optimize inventory plans or purchasing.

EazyStock Inventory Planning Technology Stack

As mentioned above, software can be used in many aspects of inventory control, perhaps the most important being that of constantly and consistently monitoring stock levels. With Eazystock inventory planners can tighten up inventory methods, with reductions of up to 20-30% in stock levels possible to free up cash flow for expansion and investment in other areas of the company.

Eazystock monitors stock levels and sales and forecasting demand, keeping an up-to-date overview of stock movements throughout the company. Not only can inventory planners see upward or downward trends across the different product life cycles of inventory items, but they can also be informed of delays and issues in the supply chain. This enables proactive inventory management as opposed to reactionary fire drill management.

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