Inventory Planning is essential for small and midsize Distributors and Manufacturers. Everything revolves around inventory and every item in your warehouse represents a piece of data. The more you know about it, the better - how often it sells, how long it takes to replenish, and how much you need (and when). Even smaller businesses are now dealing with a global supply chain that requires a high level of inventory planning. If not done correctly, it can have a major impact on your warehouse and other parts of your business, while leaving customers frustrated. So, what steps can you take to recognize what you could be doing better?
Well, it all goes back to your data. If you're relying on a "master spreadsheet" then the likelihood of manual errors greatly increases. With inaccurate data, any reports being generated to gain insights into your inventory will be unreliable. If you can’t trust your in-house reports, it's going to make it impossible to keep things running on time and on budget. Everything happening in the warehouse is time-sensitive and has an "expectation" attached to it. Delivery dates can change, certain orders need to be expedited, some items need to be sourced from alternate suppliers. Without proper inventory management, you can lose both productivity and money.
I like to think of inventory planning from the perspective of a customer. When a customer is placing an order, they will consider:
- Whether the item is currently available
- How long it will take to receive the item
- What the cost is and if there are factors that affect it (volume discounts, etc.)
When the data behind these questions is not available, I may not place the order, or more likely, I will look at their competitor's offerings.
Without effective inventory planning the data your customers expect in real-time won’t be available and that could cost you sales. You need to understand your stock levels, lead times, sales projections and Some questions to keep in mind and review are:
- Do you fully understand your lead time? Knowing the amount of time required to process an order until the item is available for sale is critical to a seamless inventory system and isn't simply "set it and forget it." Your supply chain is a dynamic process that requires daily attention.
- Do you know what your safety stock levels are (and what the optimal level is)? That knowledge gives you a buffer to make up for deviations in demand, wrong forecasts, or other things out of your control like late deliveries, seasonal bursts, etc. The goal should always be to minimize on-hand inventory, not to order more based on instinct.
- Do you pay attention to updating item classifications? You should always know what is stocked, and how essential each item is or isn’t and why. This knowledge will drive your order cycles and help drive strategic planning.
If you don’t have a full and confident handle on the above data points and other KPI’s, it’s time to start thinking about inventory software solutions. Stop wasting time and money using outdated processes and tools that aren't feeding you the right data. You need something to help manage your demand, track excess stock and stock-outs, and if you have surplus orders. Proper inventory planning and integrating the right software tools can drive a business forward quickly. Isn’t that the goal?