Demand planning is the operational activity of analyzing historical sales and transaction data to create reliable forecasts that will drive inventory replenishment and ordering activities. Effective demand planning should be a reliable process that guides inventory planners to improve the accuracy of revenue forecasts, align inventory levels with peaks and troughs in actual customer demand, while enhancing profitability for a given channel or product.
If you are a distributor, wholesaler, manufacturer or retailer your business likely manages repetitive orders of the same products and you have undoubtedly asked yourself what stock level do you need to replenish your inventory. This is a very important and sometimes costly question to ask regarding demand planning strategies. The goal for most businesses is to reduce inventory levels while being able to fill orders as your desired order fill rate to keep a predictable customer satisfaction rate.
Inventory forecasting and demand planning play an important role in the wholesale distribution of durable goods as it involves predicting the demand and sales patterns for various goods to ensure that stock is maintained at optimum levels without over incurring costs due to too much inventory while also not running into stock out situations.
The majority of inventory planners today would agree that forecasting the future is much harder than forecasting the past. Forecasting is a daunting and challenging task but planners know they must prioritize it because it’s generally accepted that better demand forecasting helps improve cost effectiveness and availability in the supply chain. There are 5 common demand planning challenges that face distributors in all different types of industries.
1. Accurate monitoring of all SKU’s and stock levels: Traditional methods of stocktaking can be inaccurate and the data is often out of date. Inventory forecasting and demand planning becomes much more difficult when stock levels are hard to monitor or lack visibility. Without easy access to stock level reports a business can quickly build up unnecessary excess stock levels or they can have stock outages is demand spikes for specific products.
2. Availability of historic sales forecasting data: Inventory planning is often based on historical sales data, and not having access to this can make it difficult to predict future demand with accuracy. Seasonal variations in the popularity of certain items can result in over-stocking or outages, and this can lead to obsolescence and missed order deadlines.
3. Calculating correct supplier lead-times: The lead time for order fulfillment needs to be taken into account when ordering new inventory: Just In Time (JIT) approaches to stock management have been proven to be less than effective, and delayed order fulfillment can result in lost sales and account cancellations. Planners should have a system in place that tracks each supplier and vendor lead times for greater insight into reorder point planning and rush order requirements.
4. New product introductions: Since most new products introduced to the mark have no historical sales data, planners are typically left in the dark to produce guesswork forecasts. Predicting the correct levels of stock will be difficult and the majority of the time will require more frequent analysis. Inventory optimization software can leverage historical data from similar or older products to simulate a base line demand pattern for more predictable new product entries out the gate mitigating some of the risk of launching new products to market.
5. Centralizing stock control: Both excess stock and obsolete inventory are easier to prevent than to eliminate. Software such as EazyStock helps operations managers to have an overview of stock throughout the business. Centralized systems can help prevent costly over ordering and reliance on suppliers and vendors can be lessened through inventory redistribution functionality across multiple stock locations. This enables stock to be moved where it is needed, eliminating unnecessary ordering and reducing inventory.
Inventory demand planning and forecasting cannot be regarded in isolation; it is an integral part of any business operation. All processes need to be integrated to ensure the business is as efficient as possible. Inventory forecasting software such as EazyStock can help organizations to become versatile by integrating stock management, demand planning and operations management to ensure the business is adaptable and profitable.
Having access to real-time information and statistics is the first step in optimizing stock forecasting, and this is part of a two-way process that unites other Key Performance Indicators (KPIs) to create a fully reactive wholesale distribution business.
The good news is that inventory software, like EazyStock, will mange the majority the calculations for you. However, optimization software is heavily dependent on the inputted data from other systems like ERP’s, MRP’s, accounting systems or inventory control modules. Be sure that you have access to critical data points (forecast, seasonality, lead times, historical sales, etc.) and that the data is properly entered and updated on a continuous basis.
As mentioned above to overcome these challenges, having the right data and software in place is the first step. Beyond that there exist also some additional factors that a company has to tackle through the right measures. One example would be to identify and monitor the core metrics that an inventory planner needs. For detailed information about this topic have a look at the following guide: