Inventory planning is the means of determining the optimal quantity of stock needed to meet a company’s production and sales targets. Different factors, variables, and inputs are necessary to plan for inventory needs adequately. Nonetheless, inventory planning has steadily grown to be a fundamental part of the modern supply chain process.
Any organization that engages in the production and sales of products will find inventory planning highly relevant. Since most businesses’ inventory needs differ, Chief Procurement Officers (CPOs) of organizations must routinely examine the value they render to customers by carefully identifying their inventory supplies and the schedule of their inventory delivery. While organizations dealing in the manufacture of goods will have to plan their inventory around the collection of raw materials needed for production, retail companies may have to plan their inventory around stockpiling finished goods in demand.
Regardless of your business model, the relevance of inventory planning to your supply chain processes cannot be understated. In this article, we will explore how companies can optimize their processes to ensure efficiency, a robust bottom line and a better customer experience using the four types of inventory: Raw Materials, Works-In-Process, Maintenance, Repair and Operations (MRO) and Finished Goods.
1. Demand forecasting
Demand forecasting, or inventory forecasting, uses predictive analysis to estimate and predict customers’ future demand. To this end, demand forecasting employs a careful study of historical data to confirm the most preferential request for a product.
No doubt, inventory planning plays a major role in helping to align optimal demand forecasting with a company’s overall business objectives. Thus, organizations can anticipate product sales through accurate demand forecasting that takes due cognizance of their inventory stock, supply timelines, and the overall supply delivery process.
The advantages of accurate demand forecasting are inestimable. Through the unique mix of careful data analysis, practical experience, and first-hand customer insights, an organization can arrive at relevant predictive models that determine customers’ needs and the best inventory to stock for that purpose. The essential data elements that are important for accurate inventory forecasting include data about current inventory levels, outstanding purchase orders, historical trends, forecasting period requirements, expected demand and seasonality, maximum possible stock levels, sales trend, and data about customer response to specific products, amongst many others.
Indeed, demand forecasting remains an integral part of inventory planning. Therefore, CPOs should harness this business process better, as it is critical to the organization’s supply chain process.
2. Warehouse inventory management
Managing stock levels remains one of the primary inventory planning methods. In a fast-changing global supply chain era, warehouse inventory management remains a time-tested method that companies can employ to smoothen their delivery processes and make way for their operational outputs. Warehouse Inventory Management involves using data processes to receive, track, audit, and manage stock.
Not only does excellent warehouse inventory management help an organization save costs by preventing it from investing in less-needed stock, but it also helps organizations minimize waste and free up capital.
There are five proven ways by which businesses can manage their inventory levels and create more room in their warehouses through optimal inventory management. These processes include:
● Working intimately with third-party logistics providers (3PLs) to carefully analyse lead times and proffer solutions to current organizational supply chain processes that hinder optimal operational output.
● Improving demand forecasting by receiving only the inventory stock that an organization needs.
● Indeed, while some stocks are slow-moving products, others are fast ones. Using data to sort inventory stock, can help identify obsolete or slow-moving stocks, so it can be removed from the warehouse, freeing up warehouse space, reducing cost, and improving profitability.
● Routinely review suppliers to identify the ones causing inefficiencies in inventory purchase, over-bloating the warehouse stock, and driving time lag between demand and supply. By communicating efficiently with these suppliers, organizations can put themselves on the path to more effectively managing their warehouse and its inventory.
● Improving order fulfilment can also improve warehouse inventory management in no small measure. By reviewing critical metrics like ordering challenges, transportation costs, and storage space, organizations can work better to ensure effective pickup of inventory for delivery to the customers. A reliable 3PL is often the ultimate difference between top-notch warehouse inventory management and an otherwise shabby one.
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3. Seamless inventory process flow
Inventory process flow refers to the method by which inventories, consisting of a stock of goods, flow smoothly through the production line with minimal delays. Seamless inventory process flow benefits a business in several key ways that boost an organization’s performance and ensure profitability.
Organizations can use careful inventory planning to improve their inventory process flow, and they can do this in several ways. Some of the methods by which they can do this are by prioritizing inventory stock, tracking all product information, routinely auditing inventory, carefully analyzing supplier performance, prioritizing stocks that outsell the most by using the 80/20 rule, monitoring sales, investing in inventory management technology, amongst many other related activities.
I have no doubt that businesses that prioritize their inventory process flow stand a better chance at succeeding in the marketplace, as opposed to companies that are negligent in their inventory process flow.
Conclusion
To optimize its supply chain process through inventory planning, a business organization must carefully delineate and prioritize its inventory planning activities, and all stakeholders in the organization must make concerted efforts toward achieving the inventory planning goals, especially the Chief Procurement Officers (CPOs) who are mostly responsible for driving these inventory planning processes.
That said, I can guarantee that with a detailed and consistent inventory planning process, organizations will start to experience growth in their operations, most of which will reflect in increased product demand, customer satisfaction, and profitability.
