8 Reasons to improve demand and inventory planning

Do you need better demand and inventory planning?

Many inventory planners find that their current processes are sufficient for basic tasks, such as ordering, processing and tracking stock items across their business. However, when it comes to carrying out more sophisticated tasks, such as forecasting demand, classifying stock and setting replenishment rules, many begin to experience problems. Are you one of them? Here are eight tell-tale signs that you need more advanced demand and inventory planning to support your stock management processes.

1. Your demand forecasting is too simplistic

Effective demand and inventory planning begins with effective demand forecasting techniques. If your actual demand is often way above or below your predictions, then the spreadsheets or stock system you’re using could simply be inadequate.

Inventory planning on paper

It’s very probable that you either use a basic moving average formula to calculate demand (historical average demand over x months/ x months) or simple mathematical forecasting techniques. Either way, both methods will fall down unless they take into account the lifecycle stage of every inventory item in your portfolio.

This is because an item’s demand pattern will be different at each stage of its product lifecycle. For example, in its growth phase, an item will often see demand increase, at ‘maturity’ demand usually remains steady, and then it becomes more erratic as it reaches ‘decline’, as sales become less consistent.

More advanced demand planning processes will use an item’s ‘demand type’ to determine the best statistical algorithm to use for forecasting e.g some algorithms are better for erratic demand types, whilst others give more accurate results for more stable demand.

2. You’re unable to forecast seasonality or deal with volatile demand fluctuations

Do you struggle to produce accurate forecasts for seasonal products or items where demand radically fluctuates up and down? If so, better demand and inventory planning will help. Every business wants to capitalise on busy sales periods and running out of key inventory items before the end of the season can dent profits. At the same time, being left with excess stock until the following season can tie up important capital.

Advanced demand and inventory planning systems can make forecast adjustments for demand variables, such as seasonality, trends and promotions, on top of your base demand.

3. Your stock levels are growing, inventory turnover is slipping

If stock in your warehouse is beginning to pile up, alarm bells should be ringing about your current demand and inventory planning processes.

Excess stock

You should be able to segment your stock into three types: healthy stock, excess stock, and obsolete stock. Obviously, you want more of the first and less of the latter two. If you’re overordering items that aren’t selling, excess stock will soon mount up, and you’ll experience low inventory turnover rates. Capital tied up in stock can also be bad for your overall business, affecting carrying costs, liquidity, and cash flow.

4. Your customer service levels are highly variable

How do you measure your warehouse’s ability to fulfil customer orders? Whether you use a fill rate, service level, service index, or perfect order percentage KPI, if it’s not consistently high, then it’s time to investigate why. Often, an inability to fulfil orders is due to stockouts, which can link back to poor demand planning and inventory replenishment processes.

5. There’s a growing trend of lost sales or accounts

Stock availability issues can often lead to a drop in sales. You may be tracking the obvious consequences of stockouts, such as abandoned online baskets or a decline in sales numbers, but, at the same time, don’t forget to monitor longer-term signs. For example, if you continually fail to fulfil customer demand, you could see customers moving to competitors for good, or find you lose important customer accounts due to an ability to realise orders on time. More sophisticated demand and inventory planning can help get rid of the root cause of these issues.

6. You’re constantly fire-fighting

When you’re constantly fire-fighting, it can be tough to achieve your targets, or have time for strategic planning. Dealing with back orders and expediting replenishment orders is inefficient and costly for any business. A smarter approach is to address the cause of problem – poor demand and inventory planning systems.

7. Inventory planning and replenishment is time-consuming

If you’re using manual processes to reorder stock, this is a certain indication that it’s time to consider upgrading to a better demand planning or inventory management solution. Processing and checking every purchase order manually is time-consuming. Plus, it’s almost impossible to reduce your order cycle times (the time between placing each order), which means you’ll be ordering less frequently and have more money tied up in stock.

Automated inventory planning helps supplier management

8. You’re unable to manage varying supplier lead times

Do you struggle to account for your individual supplier’s lead times and reorder parameters when placing orders? For example, do you often get caught out by annual shutdowns, busy periods or holidays such as Chinese New Year? Or do you find it hard to keep track of min/max order quantities and contracted reorder frequencies? If these challenges increase your risk of stockouts and lead to inefficient replenishment practices – it’s time to talk about automating demand and inventory planning!

Know your demand and inventory planning limits!

Many businesses use stock ordering systems for their inventory planning, but most will agree they have limitations. Whilst they’re ideal for tracking inventory and monitoring stock levels, when it comes to inventory optimisation functionality, such as advanced demand forecasting, setting stocking rules or automated replenishment – they lack the capabilities. These inventory planning processes therefore end up being executed in spreadsheets, which is time-consuming, can lead to human error and can become unmanageable as product portfolios expand.

If you or your inventory management team are experiencing the above challenges it may be time to consider inventory planning software, such as EazyStock.

EazyStock is easy to implement – the advanced inventory planning software simply plugs-into your current system. It then removes the need for manual spreadsheets, allowing you to automate and speed up forecasting, stock management and purchasing activities. Armed with better demand and stock planning tools, you and your team will have more time to think strategically and focus on improving your efficiency and profitability.

If you’d like to know more, call us on 0121 312 2992 or contact us here.

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