10 Tips for Successful Inventory Planning
Inventory Planning is the key to the long-term profitability of any business that sells products, materials or components. But all too often, sales and costs are adversely affected by stock issues. Whether a business can’t meet demand due to shortages or suffers inflated costs because of wastage, inefficient warehouse management is often the root cause of the problem.
The consequences of poor inventory planning can’t be overstated. At best, it can lead to reduced profitability. At worst, however, it can lead to bankruptcy if the underlying issues aren’t addressed quickly. And the best way to address them? An inventory management system that eliminates stock issues, reduces administration and minimises human error.
But there’s something else to consider: falling behind your competitors. According to the Motorola Future of Warehousing Study, 66% of retailers in the US were planning significant investments in their warehouse management systems during 2018 — a trend that’s set to continue. To stand still is to go backwards when it comes to inventory planning.
Whether you’re selling raw materials, finished products or components, you need a reliable warehouse management system and a systematic approach to inventory planning. To set you on the right path, we’ve compiled 10 tips for successful inventory management.
1. Create Priority Groups
Which items do you order most frequently? And which are absolutely essential to fulfilling orders or generally doing business? Identify those items and place them in priority groups. To get started, create three or four groups in terms of their importance to your operation. And give the high-priority items the most attention.
An inventory planning software package will help you identify and categorise the most important items in your business.
2. Keep Detailed Product Information
The more information you hold on your inventory items, the more prepared you’ll be when you need to react to changing scenarios quickly.
Make sure, as a minimum, you have a record of barcodes, SKUs, suppliers and prices. If you track the overall trend of prices for each item in your inventory, you’ll be able to identify the potential cost-savings of switching to alternative suppliers — and make any switch quickly and seamlessly.
3. Implement the 80/20 Rule
While this tip might be a little crude, it’s a good place to start if you’re struggling to control waste or ensure your stock holdings can meet demand. Put simply, around 80% of a successful business’s profits usually come from around 20% of its stock.
With the help of inventory planning software, identify your top 20% and monitor those items more closely. Identify trends and look for dips and peaks in demand. Once you understand what is driving demand for those products, you can drastically improve your inventory planning approach — and the overall profitability of your business.
4. Monitor the Performance of Suppliers
Are you certain that your key suppliers are performing as well today as they were when your relationship first started? Are their deliveries on time, every time? Have delivery standards slipped — even if only slightly? When subtle deteriorations in supplier performance are hurting your business, it’s important to have the ability to recognise them quickly in order to react. It’s also important to maintain relationships with alternative suppliers in case you need to switch at short notice.
5. Perform Regular Inventory Audits
In line with the nature of your stock, your average stock holdings and the ebb and flow of sales, create an audit schedule that works for your business. Some businesses perform a full audit once a week; others, once a year. You could, for example, decide to perform an audit on a different item category every week. Or you may decide to audit your entire inventory once a month.
The important issue here is that you create a schedule that works for your business and implement it with the help of warehouse management software.
6. Make Your Inventory Data Easily Accessible
In a perfect world, you should be able to call up data on any inventory item within seconds. Whether you want to respond to a customer query or you’re looking for alternative suppliers, the information you need should be accurate and available at the touch of a button.
When this data is both accurate and easily accessible, you’ll be able to identify slow-moving items, in-demand items, shrinkage, theft and anything with the potential to damage your business’s profitability.
Extra tip: Include detailed information on every item in your inventory, including open orders, lead times, a list of suppliers, SKUs and anything that can help you make informed decisions.
7. Be Ready to Act When Market Fluctuations Occur
If demand and supply for your products stayed the same all year round,
Inventory planning would be a breeze. But every market can be volatile at times. An almost endless list of factors beyond your control has the potential to affect both supply and demand at any time — damage your business’s profitability.
The good news is that the right inventory management system can track and store historical data to predict when changes in demand might occur. It can also give you a heads-up when a fluctuation in supply or demand is beginning. Having time to react to such situations can save your business a lot of money.
8. Take Control of Ordering
While some vendors will offer to process restocks on your behalf, you should treat such offers with caution.
Yes, this might seem like a simple way to protect your business from shortages, cut labour costs and guarantee supplies, but a vendor’s priority will always be to sell you as much as they can. Your priority, however, should be to hit that sweet spot between having enough stock to keep up with demand and not tying too much cash up in your warehouse.
If you’re concerned about stock shortages, create a bespoke inventory planning system that takes into account the ebb and flow of demand. Better still, let an advanced inventory planning system take charge of restocks for you.
9. Closely Track and Analyse Sales
While most business owners and managers would say that they track sales on a daily basis, they may not be tracking the right sales — in the right way. Analysing the minutiae of sales data is the key to maintaining a fit-for-purpose inventory.
What is driving sales of a particular item? Are seasonal factors affecting sales? What causes demand for priority items to drop off at certain times of the month or year? Do certain items tend to complement one another? The more you understand the factors that drive demand for your products, the more you can prepare for them in advance.
10. Utilise an Inventory Planning Tool
A powerful inventory planning platform allows you to manage your ordering, track sales, process deliveries, streamline picking processes and improve inventory management across multi-warehouse businesses. And the best inventory management software can be integrated into existing CRM and ERP applications seamlessly.
Datapel is a Warehouse Management System that is trusted by businesses in a wide range of industries. Whether it’s a food production company or a fashion business, every client that uses this powerful platform for advanced order management and inventory control workflows comments on its scalability — as well as its potential to cut costs and increase profitability.
Try Datapel for free today, and see for yourself how this powerful inventory planning tool can transform your business.