The lifeline of any business is providing products to their customers at the right time. And remaining at the forefront of your inventory and managing it efficiently helps businesses meet demand and generate sales. However, several challenges are associated with inventory planning, including inconsistent tracking, warehouse efficiency, inaccurate data, changing demand, limited visibility, manual documentation, etc. The optimal inventory planning provides your business with the necessary flexibility to master aforementioned business challenges. Needless to say, finished goods and raw materials are the core of your entrepreneurial activity. The end goal of inventory optimization is to convert your products into cash at the right speed and price. In this article, we’ll discuss six tips to make your inventory planning and management more effective:
How Can Your Business Properly Optimize Inventory?
Inventory management is immensely complex and both current and future demand must be taken into consideration. This can easily help you reduce the risks associated with excess inventory, which includes unnecessary capital and stock out, which affects client satisfaction. That sounds apparently easy, but it’s challenging to achieve and even harder to maintain.
Six Steps to Inventory Optimization that Every Business Must Consider:
- Item Classification
Each product in your inventory needs to be broken down into several manageable categories. Examples of such categories can include “extremely important”, “moderately important”, and “relatively unimportant”. As soon as you consider these categories, they are categorized even further. This classification helps dictate how they are treated while establishing inventory policies. By using item classification, businesses can focus on critical points within their inventory that need their immediate attention.
- Safety Stock
In the next step, it is recommended for businesses to create the basis for dynamic safety stock. This can help protect their inventory. Safety stock must be set at an item level, and businesses should refrain from setting a flat percentage for the whole inventory. Many businesses still use a blanket approach, but nowadays, it is no longer good enough. The most significant disadvantage is that so much capital becomes tied up. Moreover, it becomes challenging to go into the articles themselves, for which safety stock would be urgently required.
- Forecasts and Orders
For businesses, demand forecasting is one of the primary reasons for enabling intelligent ordering decisions. However, predicting forecasts accurately represents a significant challenge: Businesses dealing with seasonal items face high demand fluctuations, it becomes challenging to accurately implement forecasts demand. It is also more challenging for businesses to constantly add new items to their inventory.
Using inventory forecasting software, businesses can easily take on such challenges, which will help them achieve reliable forecasting accuracy. However, they should have the option to intervene manually if they need to take additional, specific findings into account, or they can utilize the suggestions provided by the software.
Making orders based on a rule of thumb, such as ordering a specific item every three weeks, is not an effective method for your order process. It is recommended to use a statistical formula that includes accurate sales forecasts, production or purchase lead items, manufacturing schedules, and service level data for every inventory item resulting in more accurate orders.
- Use the Existing Resources Available Within the Company
It is recommended to involve multiple departments and leaders while charting demand predictions. Demand planners need to collaborate with sales and marketing teams to take stock of the various promotional campaigns they are running or price changes done and how these changes affected the demand historically. .
For example, you can involve your sales department in decision-making since they are directly involved with the customers and can easily provide improved inventory management and greater visibility of the demand and supply across the business. In most cases, the marketing department is well versed with the industry trends and can therefore also provide valuable insights. Combining insights from various knowledge silos is also recommended to get more detailed insights for your inventory planning. Also, ensure that several departments within your organization communicate internally and work together.
- Liquidation plans
Even if you follow all the recommendations mentioned in this post, there will still be times when you will either have a shortage or an overstock. Inventory losses can also turn into significant financial burdens if left undetected. Therefore, physical counting of your holding is one method to provide security and ensure a clean balance sheet. Similarly, obsolete or damaged goods can also cause serious issues in your business. By developing a comprehensive liquidation strategy, businesses can not only keep their inventories lean and earn more profit but also free up cash invested in inventory. It is recommended to keep these things in mind for your future inventory optimization.
- Technology and Tools
A lot of businesses choose spreadsheets since they are considered a common solution. Using spreadsheets isn’t an efficient way to predict and manage inventory given the size and scope of the data used by businesses these days. It is recommended to select a more fit-for-purpose solution, which should be adaptable, capable, and relevant to your company to minimize risks while maximizing efficiency.
Wrapping up:
Nowadays, thanks to the advent of modern technologies, such as big data and machine learning, artificial intelligence can find unusual solutions in inventory planning, supply chain management, and logistics.
Poor inventory planning can significantly affect your customer service, employee morale, and productivity. This is why it is recommended to invest time and effort in inventory forecasting software that can take your business to the next level.
By utilizing artificial intelligence-based inventory forecasting software, businesses can enjoy a smarter inventory planning system that can meet most of their business requirements. At Fountain9, we offer AI-based demand & inventory planning solutions that can help businesses achieve their goals and grow their business faster.