A Guide to Inventory Planning

Introduction to Inventory Planning

What is inventory planning? And what inventory planning methods should your organization use to work smarter and better serve your customers?

Inventory planning enables organizations to forecast customer demand efficiently and make data-driven estimates about how many products to order to accommodate upcoming sales.

Your inventory may be a mixture of raw materials that you use to create products, finished products themselves, or items that you are still creating from supplies in storage. Since inventory is one of your company’s most significant assets, you want to manage it carefully to avoid overstock and items that may be due to expire soon if not sold in a timely fashion. At the same time, you must balance inventory levels against anticipated customer demand.

Logistics professionals rely on inventory planning to achieve their sales and fulfillment goals. With a robust inventory planning solution, you can maintain adequate stock levels, which is crucial for satisfying your loyal customers and keeping them coming back for more.

Advantages of Effective Inventory Planning

The more efficiently you can manage your inventory, the better poised you will be to address changes in customer demand while maintaining, if not boosting, the flow of revenue. Efficient inventory planning not only reduces costs, but also increases profits. On the other hand, if you have poor inventory management, you can anticipate a reduction in your bottom line.

Key benefits of effective inventory planning

Increased transparency

Better planning and control lead to enhanced transparency. You’ll gain clarity over stored and sold inventory. This is important for your company’s financial transparency, supporting compliance with GAAP (Generally Accepted Accounting Principles).

Smooth cash flow

You can align inventory management with data to reduce costs. Instead of keeping excess stock on your warehouse shelves, which reduces your available cash on hand, you will work with more agility as you save money. You also reduce the amount of obsolete goods in storage.

Enhanced demand forecasting

Use historical data to forecast demand. Knowing precisely how many products customers ordered in the past and integrating current information about market conditions, the state of supply chains and new data about customer demand, you’ll enhance your ability to predict how many supplies you’ll need to meet upcoming orders.

Inventory control

Implement processes for receiving, storing and issuing stock. You’ll know exactly what you have in storage, what you’ll need to order and what products are due to be shipped out next without the risk of selling out before meeting customer demand.

Increased profit

Decrease costs related to over-ordering and storing excess stock. When you know how many products are available as related to customer demand, you can turn over inventory faster and more efficiently, a crucial factor in boosting profits.

Enhanced customer satisfaction

One of the most damaging aspects of poor inventory management is product shortages. When customers cannot reliably order items from your organization, expect a hit to your reputation in the industry. But when you consistently meet customer demand thanks to careful planning and optimized inventory planning, customers will hold you in higher regard. Of course, keeping customers satisfied motivates them to stay with you instead of a different company. They may be more inclined to recommend you to other businesses, too, as a reliable supplier.

Quality control

Ensure only high-quality products are stocked and shipped from your facilities. This is possible when you maintain strong supply chains and use AI and ML to forecast demand more accurately. Organizations that fail to prioritize inventory planning may find themselves accepting lower-quality items to keep their stock levels up. That can be a recipe for disaster. Instead, focus your time and attention on creating a solid inventory plan.

Developing an Inventory Plan

Without an inventory plan, you are essentially planning to fail. What follows are the key components involved in preparing and devising a suitable inventory plan for your organization.

Estimating demand

Use historical data and market factors to forecast customer demand.

Because your organization will be capturing far more data than people can process accurately and efficiently in real time to react to fluctuating customer demand, it makes sense to harness innovations in artificial intelligence (AI) and machine learning (ML) systems to keep information flowing and useful.

How is AI used in inventory management? Be aware that ketteQ’s Inventory Planning solutions provide insights driven by AI, analyzing the historical record and current conditions in the marketplace and supply chains to make better management decisions. Your company can use our solution to adapt in real time, optimizing inventory levels so they stay aligned with your service and sales goals.

How is ML used in inventory management? Our solution uses machine learning to forecast demand and automate analysis of supply chain scenarios. You can customize inventory strategies to specific distribution channels, parts and products. This supports your need to dynamically manage inventory levels, without worrying about stockouts or having excess stock on hand.

You’ll have a graduated inventory plan to link the sizes of your orders and their timing with real-time data about sales volume and production efforts. The goal is to avoid experiencing overstock and drawing down inventory before meeting all customer demand.

It’s a proactive approach that takes into account fluctuations in supply and demand. As a result, you can anticipate cost savings as you streamline operations.

Creating a replenishment plan

Your main concern will be determining reorder points and schedule frequency. You can use analytics to examine historical data about what and when customers ordered previously, to help your team verify what turnaround time is needed to meet ongoing demand. You can also look at data at the granular level, to determine the ideal level to maintain for each SKU or item. Your restocking triggers should include how much lead time is needed to replenish these vital supplies, especially in the context of potential supply chain disruptions.

Tracking inventory

Implement real-time tracking systems for inventory accuracy. This enables you to keep up with the flow of production and keep revenue moving smoothly. You need to have immediate data on what you’re currently storing, or you won’t be able to order more inventory expeditiously.

Monitoring and adapting stock

Adjust inventory levels to meet fluctuating demand. The marketplace is constantly changing. However, you can keep ahead of what your customers want and need by paying close attention to your current stock and adapting what products you hold (and how many of them). You’ll adapt inventory levels to remain in alignment with current customer desires as well as the demand you’re forecasting with the help of automated artificial intelligence and machine learning systems.

Inventory Management Methods

What is inventory management? No definition of inventory and inventory management would be complete without considering the main methods involved in modern management techniques.

Logistics professionals consider three key techniques for managing inventory effectively as part of planning: EOQ, ABC and JIT:

Economic order quantity (EOQ)

Use the EOQ technique to minimize costs with an ideal order quantity. You’ll identify expenses, including the cost to hold items and order them, so that you can get a better handle on your levels of stock. With EOQ, you compare the cost of ordering more inventory versus the expenses of carrying larger amounts of inventory. Logistics professionals factor in carrying costs and ordering costs as compared to the historic and current demand from customers to determine their EOQ.

ABC analysis

With ABC analysis, you classify your inventory by demand and value. This involves ranking products into classes according to the risks, costs and demand. If you’re currently uncertain about what products to stock and how many units, or when you should place more orders, use ABC analysis, noting which items are:

A: High value, in high demand and carry higher costs

B: Medium value with moderate customer demand, and at moderate costs

C: Low value products that cost less and see less demand from consumers

Just-in-time (JIT) inventory

Adopt the JIT approach to help you minimize storage costs with precise timing. You only order the stock required to address customer demand today. A benefit is that you reduce stock holding costs while still having sufficient products to meet all orders. Keep in mind that the just-in-time method is vulnerable to global supply chain problems, such as unpredictable emergencies, war, natural disasters and labor shortages.

The Success of Your Business Depends on Robust Inventory Planning and Management

Following best practices for inventory control will help you better meet customer demand. With a comprehensive inventory management plan, you’ll be able to keep customers satisfied by always having sufficient stock on hand as orders arrive. Doing so is key to the ongoing success of your business and avoiding losing market share to competitors.

At ketteQ, we support our customers’ inventory planning and logistics needs, especially through advanced technology and data-driven solutions tailored to enhance the efficiency of supply chain management planning.

If you need more insight into what is inventory planning or would like to learn more about ketteQ’s approach to inventory management planning, please request a demo today. The inventory planning and control experts at ketteQ are standing by to help.

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