What Is Inventory Planning And How Do You Do It?

Inventory planning is essential for businesses to ensure they maintain the right balance of stock, avoiding the pitfalls of carrying too much or too little. In the fast-moving retail sector, it is important for you to strike the right balance by having products available without tying up capital in unnecessary inventory, which can be expensive. In particular, slow-moving and obsolete stock (SLOB) can be a problem, as it takes up valuable space, ties up capital that could be invested elsewhere, and dents margins.

Companies like Amazon and other ecommerce giants have raised customer expectations, with fast delivery times and a vast selection of products available at any time. As a result, a reliable forecasting system is crucial to meet these expectations and avoid losing sales due to out-of-stock situations.

Inventory management software allows you to manage inventory levels and forecast future demand more effectively. These tools help you keep track of stock, sales history, and supplier lead times, providing insight into future demand and driving informed decisions.

Forecasting future demand

You can use your inventory management software to access current and historic sales data which enables you to map trends, identify seasonal peaks and uncover new opportunities. It also helps you to understand the impact of promotions and marketing campaigns, and predict sales volumes for specific products.

Determining optimal inventory levels

Several factors come into play when determining optimal inventory levels, such as the cost of holding it, the lead time for orders, and the frequency of stockouts.

The cost of holding inventory includes rent, utilities, insurance, and labour costs, while the lead time for orders refers to the time it takes for an order to be fulfilled from the time it is placed. The frequency of stockouts refers to the frequency with which a product is out of stock – which can result in lost sales and damage to a business's reputation.

Using inventory management software and tools

Inventory management software and tools can help you to monitor inventory levels, forecast future demand, and save time by automating the ordering process. They can also help you to reduce the risk of stockouts, improve customer satisfaction, and reduce holding costs.

Optimising inventory planning

Effective inventory planning will offer many benefits to your business, including reducing holding costs, improving customer satisfaction, and increasing profitability. One way to optimise inventory planning is to adopt a just-in-time (JIT) approach, a lean inventory management strategy that aims to minimise waste by ordering inventory only when it is needed.

Another approach to inventory planning is safety stock management, which involves determining the right amount of safety stock to maintain based on factors such as lead time variability and forecast accuracy. By managing safety stock effectively, companies can reduce the risk of stockouts and improve customer satisfaction.

As we’ve seen, effective inventory planning involves understanding sales patterns so you can respond quickly to changes in demand.

If you're responsible for managing inventory for your business, you know how complex and time-consuming the process can be. Fortunately, there are a variety of tools available to help streamline the process. One such tool is Spruce Inventory Planning, a solution provided by ECI Software Solutions.