How to Optimize Your Inventory Planning

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Inventory planning can be a headache, and it only gets more complicated as your business grows. However, this apparent downside also has the advantage of making inventory planning a particularly good metric for the success of your business. If you find yourself having to expend more effort or resources on inventory planning, then something is going right. Nevertheless, inventory planning can also represent a hurdle at which many medium-to-large businesses can stumble, so you need to plan for it and ensure you do it properly. But what is it?

Inventory represents the largest part of any business’s assets. In fact, it is estimated that the average ecommerce business has around 80% of its finances tied up in inventory. Accordingly, it is particularly important that that inventory is going to get sold, and efficiently at that. The reason why inventory planning is complicated for slightly larger enterprises is that they are usually operating over multiple sales channels, to multiple clients or customers, and the inventory is typically stored in (and shipped to) many different locations.

There is also the phenomenon of dead inventory, whereby inventory just sits in storage, never being sold because the level of demand has fallen away. So, any business needs to engage in some careful planning here – inventory planning to be exact.

The Basics of Inventory Planning

The first thing to understand about inventory planning is that it is an integral part of supply chain management, a much larger process that also includes order management, accounting, warehouse operations, and customer management. Inventory planning therefore needs to be practical. At the most basic level, it is a matter of ensuring the inventory is there to match the orders and that projections of demand are accurate enough to ensure that future inventory purchases can be quickly sold on.

The alternative to doing this properly is a cash flow problem. We have already mentioned how much of a company’s assets are tied up in inventory. This means that the cash is certainly there, it just exists in the form of unsold inventory. FastFACTR, a company out of Utah that specializes in invoice factoring for small business, say that being unable to shift inventory in time is one of the major reasons to use a service such as theirs. If you order inventory for the month, but it takes two months to sell it all, you will eventually get the money, but you will have a cash flow problem.

Therefore, inventory planning is all about forecasting demand, which is something easier said than done. The general idea though is to order just enough to meet demand over a specific period – no more, no less. This will help optimize your cash flow. Here follows then some things to consider for inventory planning:

What is My Product Volume Likely to Be?

The only way you can really make a (fairly) accurate prediction here is to analyze past sales. But don’t just assume that things will continue at that level. If you’ve noticed growth, extrapolate that growth!

What Might Impact My Inventory?

You need to also consider the external factors that can impact inventory, as these can render any trend projections invalid. Advertising campaigns, company growth, and seasonal spikes are all factors here,

Am I prioritizing Efficiency?

In other words, is your inventory delivery, shipping, and ordering processes as good as they can be? You could end up wasting funds for a suboptimal inventory storage solution, for example.

Ultimately, inventory is where the money is, both in terms of the fact that inventory is likely to be your largest asset and that selling inventory is simply how you make money.

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