Every business needs to maintain an inventory of some sort. Inventories store both raw materials and finished products. Production and manufacturing units hold an inventory of raw materials and work-in-progress items, and retailers also need to maintain an inventory of finished goods for selling to consumers when orders are placed. It is critical for the inventory to be stocked optimally to avoid situations of stockouts. Since it can harm the business if the demand for products are not met correctly. On the other hand, overstocking the inventory with slow-moving goods increases the inventory expenses of storage, heating, and refrigerating.
Organizations can ensure a constant flow of operations by maintaining a proper inventory. Inventory operations can make or break a business, which is why businesses focus on effective inventory planning systems that can handle for variations in stock fluctuations. Companies can schedule output flexibly by maintaining an adequate inventory. You can obtain bulk orders at discounted prices with a planned inventory. Therefore, the need to maintain an inventory planning system and to track it on a real-time basis is understandable, and both hold the same importance for businesses.
What is Inventory Planning?
Inventory planning is the method that a business employs to identify the optimal quantity and aims to align the strategies with the organization’s potential to generate sales. Inventory planning is associated directly with the cash flow and profit margins. It is essential for the success of every business.
Advantages of Inventory Planning
Good inventory planning can have a positive impact on your business, and you can draw a lot of benefits from inventory planning.
- Cash Flow – Inventory planning enables startups and small businesses to monitor their cash flow. Small businesses cannot always buy large stock quantities as they have limited revenue. Thus it is critical for them to understand exactly when to reorder or restock items by monitoring inventory in real-time. It can help to liberate resources for reinvesting in other business areas.
- Enhance Profits – Small businesses can increase profits by making better business decisions. The inventory can be stocked with items that are in demand and sell fast. Other stocks that are not in demand can be stocked in low amounts as otherwise, capital would be locked up in slow-moving goods, and the stock might decay.
- Business Intelligence – A robust inventory planning system enables businesses to attain meaningful insights into how products are faring in the marketplace, whether in high demand or slow-moving. Companies can adjust their product line and make well-informed and smart business decisions.
- Minimize Labor Cost – Improved inventory planning can assist businesses in minimizing labor costs related to inventory. These involve the time wasted locating and counting stock and transporting the stock. Deploying an efficient stock planning software can reduce all these activities that need manual labor and save time.
- Reduces Employee Mishandling – Inventory planning allows businesses to monitor stock closely and prevents employees from stealing products. Employees often steal products from the inventory and use them for personal use. Without control over inventory, business owners would not be able to identify all this, and the malpractice cannot be identified. This results in a loss for the business and limits the employee from indulging in activities such as stealing. Like this, a company can minimize the potential ‘hidden cost’.
Inventory Planning Objectives
Inventory planning includes the following components:
Forecasting – Demand forecasting predicts future demand for a product or service for a particular period. Inventory planning includes a method of counting and maintaining the right inventory level to meet consumer demand at the proper time.
Cost Control – If useless stock is maintained in the inventory, it increases the inventory expenses and the overall business cost. Inventory carrying cost includes the buying cost of raw materials, the cost of labor who receive and maintain the inventory, and the cost of insurance and security. The main aim of inventory planning is to reduce such costs.
Utilizing Technology – Inventory planning software analyzes historical sales data and forecasts demand accurately to maintain optimal stock levels. It helps to prevent situations of overstocking and understocking.
Effective Warehousing – Well-designed storage systems enable proper inventory planning and management. The main motive of an efficient warehouse is to place goods with high demand at a convenient place that is easily accessible so that these goods can be dispatched quickly for fulfilling orders.
Process of Inventory Planning
The steps of inventory planning in retail and manufacturing units include the following steps:
- Purchase – Businesses buy inventory depending on forecasted demand by examining trends and patterns. Storing inventory items in excess is never desired, and organizations might overstock purchasing items from suppliers.
- Store – Businesses should store inventory in a clean and sanitized area, and they need to pay for refrigeration, heating, and lighting. Organizations should devote time to planning and researching to locate stock quickly.
- Use – Businesses utilize the inventory for various purposes and use raw materials, finished goods, or repair parts as and when required.
- Track – Tracking stock constantly is needed to maintain cash flow, production flow, and satisfy customers. By knowing what is in stock, businesses would know what and when to restock.
- Reorder – You can replenish inventory automatically with an inventory planning software. Mathematical, management, and strategic models can assist you in comprehending the optimal stock level and reordering items when needed.
- Forecast – Established businesses and new companies that have experienced a few inventory cycles can estimate product demand and help maintain a proper inventory throughout the year.
Fountain9 is a company that assists businesses in maintaining an optimally stocked inventory. Their AI-powered inventory planning system, Kronoscope, considers several factors that influence demand, and this helps companies to meet demand effectively at the right time. It helps to avoid situations of overstocking and understocking and eliminates stock wastage.
The software brings everything from the demand and supply side together in terms of predicted quantities, inventory levels based on shelf life, vendor constraints – lead time, fill rates, MOQs, dynamically adjust safety stock levels and suggest purchase order quantities. All of this gets taken care of with just 2 clicks and can be fully integrated with any ordering system as well.
Learn more about Fountain9: www.fountain9.com