Stocking up on goods and hoping for the best is not exactly a successful retail management approach. If you want to make sales and move inventory, everything you buy for your store needs to be planned in advance. You must decide what you will stock up on, how much stock to order, when you will sell the goods you have, what you will do if they don’t sell as expected, etc. All this is a part of a process called inventory planning.
This post will provide you with a brief overview of what inventory planning is, what are its challenges and benefits, and a few tips on how to make a successful inventory plan.
What is Inventory Planning?
Inventory planning is the process of selecting the optimal quantity and timing of inventory with the goal of coordinating it with sales and production capacity. Planning an organization’s inventory has an impact on its cash flow and earnings and helps to ensure a smooth supply chain.
Benefits of Inventory Planning
Planning your inventory properly can help you run a successful retail operation. It specifically aids you in:
- Improving cash flow. Planning effectively might help you avoid problems like having too much capital invested in your inventory.
- Increasing sales. Stocking up on the goods that appeal to your market can enable you to decrease inventory costs while at the same time increasing sales and earnings.
- Boosting customer satisfaction. Proper inventory planning policies will help you meet customer expectations more effectively. Customers will be more satisfied if you always have the right products available when they need them.
- Reducing overstocks and understocks to a minimum. Retail businesses can avoid overstocking or understocking their inventories by using inventory planning methods. It enables them to maintain ideal volumes and optimum inventory levels.
- Maximizing storage. Proper inventory planning will make room in your warehouse for products that generate income and reduce storage costs.
- Reducing theft and mistreatment. Raw materials and products that are not under control are easily lost.
Challenges in Inventory Planning
Whether for manufacturing or retail, planning inventory and customer demands presents a variety of difficulties. Forecasting can be hampered by a variety of obstacles in addition to the challenge of predicting future needs and sales. Other elements may make the actual planning process more difficult:
Lack of automation. Cloud based inventory management software has the capacity for automatic tracking and restocking. It provides you with accurate inventory data to streamline different inventory processes that were previously hindered by manual inputs and human error.
Untrained personnel. On the other hand, the inventory software you are using will only be as effective as the information users enter. For the best results, your staff must receive thorough training on all systems.
Lack of communication between departments. Procurement, R&D, manufacturing, and quality control may not discuss inventory needs and potential problems in some businesses until concerns arise during production.
Multi-channel warehousing. Retail brands often pull products from several locations, including warehouses, distribution facilities, and physical stores. Monitoring several sources makes managing inventory and fulfilling orders more difficult. Orders filled from several locations result in higher shipping prices, which frustrates customers who are waiting.
Poor picking process. Productivity is lowered when stock is arranged inefficiently. Take into account the distance that things must travel from the inventory to the store or factory floor. Put inventory items that are commonly needed in places where they are easy to find.
Limited cycle counts. An annual cycle count reduces efficacy because it often necessitates a one-day operation shutdown. Frequent counts on a subset of your inventory will allow you to take a more informed and manageable approach.
5 Tips On How To Develop Inventory Plan
Poor inventory planning can result in excess inventory gathering dust on shelves or customers who are angry that you have run out of their favorite product. Here are five simple steps that will help you develop an effective inventory plan and prevent situations like these:
Stocking products that customers want is the first step of every successful inventory plan. You can determine demand by monitoring sales over time and recording the results in a database. For instance, if you know you sell about 25 white T-shirts a week, with constant demand every week of the month, your inventory plan should allow you to meet that demand while also making sure that you don’t have a lot of excess inventory. Still, even if demand is smaller or less regular, it is smart to maintain a few extra pieces in stock.
The inventory planner should take into account factors that could sway demand, such as your competition’s offerings and price cuts, advertising, seasonal demand, customer preferences, trends, and your target market’s income.
Many companies use continuous inventory control to determine demand. Continuous inventory control is often used in businesses for this reason. The fixed orders generated by this model are based on the Economic Order Quantity (EOQ) function and are placed when the stock hits a predefined minimum. This approach is frequently used by larger enterprises with steady, predictable demand or product lines.
Organize Your Warehouse
A well-organized storage area allows staff members to conveniently arrange new deliveries and choose things for fulfillment. Your warehouse should be big enough to hold excess stock when suppliers provide sales but not so big that you have to pay rent and electricity for extra unused space.
Economic benefits can also be gained from a warehouse’s location; for example, a warehouse close to a supplier may result in lower transportation costs and allow you to obtain materials before your rivals. You can outsource the management of warehousing and fulfillment to third-party logistics businesses (3PLs) if that’s a more cost-effective option.
Come Up With a Replenishment Strategy
Supply chain management is a crucial part of inventory planning and inventory optimization. Be aware of inventory turnover rates, reorder points, the time it takes for goods to arrive, and any potential obstacles. For instance, a just-in-time inventory system functions best when you are confident that you can promptly obtain any items you might need.
Establish a broad restocking schedule for the supplies you’ll need frequently. This can range from weekly shipments of other things to daily deliveries of perishables. Additionally, consider your alternatives for how much the inventory expenses would rise if you need to renew your supply on an irregular timetable.
Keep Track of Your Inventory
The effectiveness of an inventory control system depends primarily on its tracking capabilities. Use inventory management software to catalog your stock, track changes in real-time, and get a complete picture of your inventory levels.
This software places orders in order to ensure that you replenish inventory to the proper level and avoid overstocking, Digital planning systems also offer an insight into current inventory levels and historical data for forecasting. Be sure to train your staff on how to use the software at all times.
Photo by Lucas Hoang on Unsplash
Change and Adjust as Necessary
Review your inventory management system on a regular basis to see if the original presumptions are still valid. Your initial demand forecasting may have been off if you find that you unexpectedly run out of black trousers during each inventory cycle while having more black blazers than you need. The best balance between your stock levels can be achieved by altering the order quantity for each. Creating a liquidation plan for unsold goods can help get those goods out of storage and allow you to make better use of the available space.
The Bottom Line
Achieving optimal inventory levels isn’t something that happens overnight, In order to make sure that product numbers are always accurate, you must have reliable inventory planning procedures in place. Use the tips listed above to make your planning better, and be sure to invest in an effective apparel inventory management software that will help you to streamline your operations.