What is inventory planning?
Inventory planning means ensuring you have sufficient stock to meet your future demands.
If you buy, make, or sell stuff, you will have inventory. Carrying the optimal amount is a key calculation for you. Carry too much and you are tying up cash and risking obsolescence. Carry too little and you are risking stock-outs and a damaged reputation, to say nothing of missed sales and revenue. If you are a distributor or stockist, the calculation is complex enough balancing sales orders on hand and expected with what is in stock, what is due in from purchasing and when. Yet, if you are a manufacturer, the calculation is more complex as you have raw materials, production schedules and bills of materials to factor in.
Your inventory planning strategy will probably change over time. It may start small, working with spreadsheets, then grow and expand as your business does.
Very early on in your growth cycle you will run out of patience with spreadsheets. They are a departmental solution to a company-wide problem. Multiple spreadsheets usually mean multiple versions of the truth, as synchronization is not easy. The solution is an inventory planning and management system.
Inventory Planning Software
SOS Inventory is a specialized inventory management and manufacturing solution designed exclusively for SMEs. It is simple-to-use and easy-to-implement. It can be installed in as little as 3 to 6 weeks (see case studies). It is designed to integrate seamlessly with QuickBooks, the world’s leading SME financial accounting system.
SOS Inventory provides the visibility needed for more accurate forecasts, analysis, and planning. When each member of your team is working from the same data sanity will return. How many do we have in stock is a number and not a guess. Inventory levels are optimized, inventory counts are accurate, and costs are consistent from one workstation to another. Historical data from previous seasons is available to help provide valuable insight to future demand. Your inventory management planning software should bring greater awareness of product performance and how money is spent.
As your inventory planning software, SOS Inventory provides over fifty different reports for deep analysis by any classification to delve into product performance, identify what’s working and what’s not and make informed decisions about quantities to order and processes to streamline.
If you’re looking for a way to prosper at a time when challenges are coming from every direction, inventory management planning can set your business on a better course to face the demand fluctuations that come your way.
The Benefits of Inventory Planning and Control
Within a few weeks of software implementation, your business will be running smoothly, carefully managing inventory and production to create consistency throughout every department. Over time, having fully integrated highly functional software will drive accurate historical data for predictive analysis. Reports are available as you need them to see exactly how much inventory you have on hand, at any location or stage of production. Your accounting department can generate invoices based on partial shipments and price tiers can be adjusted by customer.
The level of control given to you when implementing SOS Inventory allows for better inventory planning, production planning and management year-round. React to demand changes quickly and adjust your reorder levels according to new suppliers. When you can see all the layers clearly, you can respond quickly to market changes, reducing costs and improving efficiency.
Part of your inventory planning strategy is finding the right number of items to add to your inventory to bring overall costs down as low as possible. The quantity can be calculated with a formula and is referred to as the economic order quantity (EOQ).
Essential Components of Good Inventory Planning
Inventory planning will directly affect the profits and cash flow that your organization maintains. When implemented properly, it prevents stock-out issues, which allows you to reduce last-minute purchase costs and keep production flowing. It also facilitates more discounts on regular and bulk orders. The right inventory planning requires a combination of technology, people, and process.
The technology you use for inventory planning should largely center around software that performs the necessary orders that will keep stock at the correct levels. Digital planning systems offer comprehensive data that can be used for forecasting. This software can also help you grow and scale your business.
When taking a closer look at the people who should take part in inventory management planning, the most important roles involve inventory planners. These professionals have the skills needed to analyze sales trends and provide you with accurate forecasts. Inventory planners typically work with financial analysts, quality control and production stakeholders, contract management leaders, and purchasing leaders.
Having the right policies in place will make it easier for you to complete inventory maintenance processes and govern any planning activities. Make sure that any inventory planning processes are properly defined and documented before being communicated to the entire organization as well as the broader supply chain.
The procedures you develop can involve enterprise resource planning as well as item storage. Once you’ve created the necessary procedures, your distribution center and warehouse staff can be guided by these documents when handling inventory.
How to Calculate Your EOQ
Assuming costs remain the same, EOQ aims to reduce your overhead costs such as holding, demand and order charges using a 19th century formula. If these costs fluctuate often, the EOQ formula may not be suitable. On an annual basis the following are calculated:
D = Demand in Units
S = Cost per Unit
H = Holding Costs
EOQ = square root (2DS/H)
Because businesses are eternally in pursuit of the ideal amount of inventory to keep in stock to meet demand and maintain quality while minimizing finances tied up in inventory, calculating the EOQ is very helpful in reducing costs and increasing profitability. By avoiding the depletion of inventory, a company can steer clear of shortage costs (lost sales). EOQ helps determine the correct reorder point for each product.
Q: Why is inventory planning important?
A: If you’re approach to changing demand is reactive, you are likely to face shortages or overages which translate to waste or lost sales or both. Planning allows your business to anticipate change and prepare to optimize profitability.
Fortune Telling vs. Inventory Planning Software
A blend of internal and external factors goes in to forecasting trends and demand. Externally, you must look to what competitors are doing, whether the economy plays a role, and geopolitical factors impacting your supply chain.
Internally, you must assess your storage space, manpower, brand loyalty, and customer base.
Planning for future demand requires consideration of past successful products, pricing, and duration. Gathering data for different product categories allows for future planning of those same products’ budgets and production.
And there will always be random, unpredictable circumstances to navigate your business around. The more accurate your information, the faster you can react and the better you can handle any one of these challenges.
Recalibrating Your Inventory Control Plan
Once the planned for season is in progress, individuals responsible for inventory management may assess whether their calculations require adjustment. Have sales gone as planned? Was more or less product required to meet demand?
Do you want your brand to be portrayed as a discount outlet? Well, that is how you will be depicted if time-and-again you are having to slash prices to move excess inventory.
Great inventory planning software supports better informed inventory decisions.
SOS Inventory provides this valuable support at a price point SMEs can easily afford.
Get started with SOS for better inventory planning today and higher profits tomorrow.