Inventory planning is essential to a company’s profitability, yet many small firms need more effective management techniques regarding their products. Some companies need adequate inventory, which prevents them from providing enough products to meet client demand. This frequently pushes clients away, sometimes permanently and occasionally to another business.
However, many companies take the opposite approach and overstock inventory “just in case.” Although you’ll always have the products your customers want, this tactic risks making your company lose money. In addition to using up precious cash flow, excess inventory is more expensive to store and track.
Between these two extremes is where effective inventory planning lies. While achieving an effective management process needs more effort and planning, your earnings will benefit from your efforts.
Why is Inventory Optimization Essential for Ecommerce?
It can be challenging to optimize your supply chain because of the growing popularity of multichannel commerce and the unpredictable effects of natural disasters, a lack of raw materials, closed factories, and other issues.
You should prepare for the unexpected while still meeting demand and controlling logistics costs using the appropriate tools, technology, and resources. Inventory Control Techniques for Optimizing Stock Levels
Estimate Demand
Demand forecasting is the main component of inventory planning. Controlling your stock levels depends mainly on knowing what products to carry to meet market demand. Setting up sophisticated inventory forecasting models that generate precise demand estimates requires significant investment in time (and, if necessary, finances). It is not sufficient to assume that this year’s sales will be similar to those from the previous year.
Determine Safety Stocks
Safety stocks are known as buffer inventory which is the number of products stored in case of emergency to meet demand when low inventory levels are available. For calculating the safety stock, one should know the maximum daily usage and lead time and the average daily usage and lead time for every SKU. With inventory planning software, the calculation becomes easier. You can calculate the reorder quantity for how much inventory you need to stock.
Utilize Reorder Point Formula
You also need to know when to reorder stock, so that you do not stock up in excess and lock up revenue in inventory. For this, you should consider the lead times. To calculate the reorder point, you need to add the demand during the lead time and the safety stock. With inventory planning software, you can easily calculate the reorder point for every product while considering all the data available.
Do Inventory Audits
You can track inventory efficiently with daily inventory audits and efficient warehouse receiving procedures. You should track holding costs and ensure that everything is clear. Audits can be time-taking, and software for inventory planning can automate the process.
Track SKUs
By syncing the SKUs with an inventory planning software, you can update, track and manage all the products along the distribution channel, thus helping you to avoid running out of inventory. With inventory planning software, you can view inventory levels in real-time, establish re-order points, bundle different SKUs for promotions, etc.
Distribute Inventory Across Ware houses
With centralized inventory, you can store inventory in places where the demand is high. When SKUs are distributed across several channels, it gets easier to reduce shipping costs. You can check the performance of each SKU across different locations from historical data. Thus, you can understand how much inventory to store at every location.
Product life cycles: Each item in your warehouse is in a particular stage of its product life cycle. Forecasts must consider how each life cycle step will impact the item’s demand pattern.
Seasonality: Find any products in your portfolio with varying seasonal demand. Keeping seasonal demand elements separate from your basic demand estimations is recommended practice, and this keeps the data organized and makes it simpler for future forecasts.
Trends: Fashion, technology, social, economic, and legal issues all affect product demand; you should take these into account and modify estimates accordingly.
Qualitative factors: Your data should include qualitative predicting variables like sales campaigns, rival activity, or outside market events.
Service Level Targets to Optimize Stock
A target service level is measured by the likelihood that an item will be in stock in the proper quantity when it is requested for delivery, resulting in a fulfilled order.
Consider your consumers’ expectations for availability and delivery time frames when establishing goal service levels. Consider the scenario where your consumers will accept a lead time of seven days. If your suppliers have short lead times, you can reduce your inventory levels and rely on smaller purchase amounts to save money. Alternatively, you could arrange on-demand orders with them.
Finding a balance is essential since not meeting client expectations can result in lost sales and a tarnished reputation.
Service levels will also impact your stock turnover rate. To maintain a high turnover rate and prevent unnecessarily tying up cash, aim for greater service levels on faster-moving commodities and lower ones for those with less demand.
Safety Stock for Eliminating Stock outs
The layer of inventory retained to avoid stock outs and back orders when the projection is exceeded, or the supply is delayed is known as safety stock or buffer stock. While spending the least amount of cash possible in inventory, safety stock helps to minimize interruptions brought on by changes in demand, the supply chain, or ful filment.
Many companies continue to compute safety stock using the basic stock days model, which involves calculating the number of days (or weeks) of demand and adding enough buffer stock to account for any fluctuation, such as four weeks of cycle stock and two weeks of safety stock.
However, this “one size fits all” strategy assumes that every item in the warehouse would behave and have identical demand patterns. This is different, as we’ve already discussed, and you are less likely to encounter out-of-stock or overstocking situations the more precisely you can calculate safety stock levels. The three most crucial variables to consider while estimating safety stock are forecasting accuracy, lead time, and the required service quality.
Adjust Your Stock Replenishment Strategies
Only with wise inventory planning procedures can stock levels be optimized.
The defined reorder point is when most firms reorder when they reach a predetermined date or when a stock falls to a predetermined level. They typically reorder a fixed or variable amount to maintain a minimum or maximum stock level. One of these methods will be used by numerous ERP and WMS systems. You must find a more intelligent replenishment strategy if these techniques result in stock outs or where there are too many supplies. Consider the following variables, supplier lead times, demand predictions, and cost-effective order amounts, for a more “informed” or dynamic approach.
Analyze Suplier Performance
Your inventory may have issues if your source is unreliable. It’s time to take action if you have a supplier who consistently makes deliveries late or under delivers an order. Find out what the issue is by talking about it with your supplier. Be ready to change partners or deal with erratic supply levels and the potential for inventory shortages.
Track All Product Information
Keep track of the product details for the items in your inventory. SKUs, bar code information, suppliers, countries of origin, and lot numbers should all be included in the inventory planner. Consider keeping track of the price of each item over time so you can be aware of elements like scarcity and seasonality that could affect the price.
About the Company
Fountain9 assists companies in stocking inventory optimally with their inventory planner Krono scope. Krono scope considers the supplier lead times, current inventory stock, forecasted demand and other factors to understand how much inventory to reorder without overstocking or under stocking.
This is not the current link for inventory planning.
please ensure to direct inventory planning keyword to – https://www.fountain9.com/purchase-replenishment-planning
rewqrite this, this is not correct
refer to https://www.shipbob.com/inventory-management/inventory-optimization/
