Small and medium-sized businesses face a tough challenge when managing inventory, regardless of industry. How do you meet customer demand while minimizing the costs associated with overstocking or stockouts?
As the lifeblood of retail and wholesale operations, inventory management ensures that businesses can operate efficiently.
In an increasingly competitive landscape, where customer expectations are high and market conditions shift rapidly, poor inventory planning can lead to significant financial repercussions, such as increased carrying costs and lost sales opportunities.
However, optimizing inventory ensures product availability, reduces excess stock, and frees up capital, leading to better cash flow and customer satisfaction. Clearly, inventory planning and management are critical aspects of running a business and determining its success.
This article explores how to improve and master the inventory planning process. But first, let’s lay down the basics.
How to Improve Your Inventory Planning
Summarize this article for me pleaseUnderstanding Inventory Planning
Imagine this: you’ve developed a successful product, and as soon as it launches, you’re confident it’ll sell out. You stock up, market it, and wait for the sold-out sign to appear. However, an unexpected issue arises, and now delivery times are longer than anticipated.
As a result, your customers are starting to cancel orders and request refunds. The extended delivery time has overshadowed the product’s demand, leaving you with unsold inventory and no buyers.
A hit and a miss, quite literally!
Stocking up products without carefully assessing demand can lead to excess inventory, increased storage costs, and potential waste. The downstream effect severely impacts your business’s profitability and operational efficiency.
On the other hand, understanding and implementing smart strategies can help you stay ahead of the game. Proper inventory management is all about layering. Over the long term, inventory management software can make the entire effort much easier and more reliable.
What is inventory planning?
Inventory planning involves managing and organizing the products a brand intends to sell to generate profit. It encompasses various logistics and strategies that must be implemented daily to ensure a business runs smoothly.
Inventory planning differs from business to business. One strategy cannot be applied to all.
For example, stocking up for longer periods isn’t an option if you have a fashion or perishable food business. A fashion house’s prime focus is to sell its stock before it goes out of style. For a food business, storing too much without an apparent need might lead to stock damage.
Inventory is valuable only if it keeps moving and gives way to profitable cash flow.
Benefits of inventory planning
Efficient inventory planning allows your business to earn revenue without complications. This is your baseline.
Here are the four key benefits of proper inventory planning and management.
Increased profitability
Accurate inventory planning allows you to make a profit, enhance opportunities, and expand seasonal sales. Performance tracking and historical sales data analysis will enable you to negotiate with suppliers, packers, and transporters so that your inventory is always at optimal levels.
Customer satisfaction
Let’s take the example of a bookstore called Forgotten Chapter. The bookstore starts as a classic books business, with piles of novels on discount and people flocking to buy them.
A few months later, Forgotten Chapter decides to evolve with the trend and sells the latest fast-moving novels. They fill their warehouses, and business doubles. In the process, they lose track of storing vintage classics, their specialty. Eventually, customer walk-ins drop, regulars stop, and sales plummet.
What do you think is the problem here?
They stocked the latest releases, improving initial sales, but in doing so, they lost their unique selling proposition (USP). It was their classic offerings that truly set them apart.
Does this mean businesses shouldn’t evolve with trends? Absolutely not—they should. However, what Forgotten Chapter overlooked was their KPI analysis and order management. This is a classic case of inventory planning gone wrong.
Order management software can help you track past orders, allowing you to plan and scale up accordingly.
Inventory planning is directly linked with customer satisfaction. Analyze past sales data, predict future sales trends, and implement a strategy that suits your business. Take advantage of your unique selling point to bring in loyal customers.
Reduced holding costs
Many startups tend to overstock inventory, which ties up valuable initial funding. Inventory planning, on the other hand, frees up capital. The key questions to ask here are: How does the product sell? Where does it sell? Who is the ideal customer?
By answering these, you can start reducing holding costs effectively.
A lot of this endeavor requires planning while knowing your business capacity. It involves looking at data, calculating present stock, and forecasting future trends, thereby reducing holding costs of immobile inventory. You can lead your company by showing them capacity planning with the help of simple Excel sheets and easy inventory planning templates.
Improve supply chain efficiency
Just-In-Time (JIT) inventory planning is a highly effective practice for avoiding overstocking. It involves receiving goods and raw materials from suppliers only when they are needed.
JIT inventory planning is also known as TPS or Toyota Production System, after the renowned auto company that adopted this modus operandi in the early 1970s. Toyota only orders parts for its vehicles when needed or when it receives orders for new cars.
This is also a result of effective supply chain management.
Here, ClickUp’s Vendor Management Checklist Template lets you build spreadsheets that make inventory management hassle-free.
This template can help you evaluate and select the best vendors for your products, collect feedback to monitor their performance, and improve communication and collaboration.
With this template, you can
- Add Custom Fields to separate vendors based on viability, logistics, timelines, and responsiveness
- Use 16 different custom attributes, such as Remarks, Contact Number, Vendor Email, Timeliness, and Brands, to save information about vendors and easily visualize vendor data
- Open four different views in different ClickUp configurations, such as the Vendor Assessments, Getting Started Guide, Vendor Information, and Vendor Assessment Form, to easily access and organize all the information
Challenges of the inventory planning process
The most complex aspect of inventory planning is managing and making sense of large volumes of data.
Every order needs to be signed for, transport details mentioned, warehouse or stock storing details elaborately listed, and the costs for every little aspect of the business need to be billed and accounted for.
All this requires a flawless and easy-to-use inventory system, not to mention advanced logistics planning.
A few other challenges that can arise are
- A lack of supplier reliability and poor communication
- Inaccurate advance forecasting leading to unplanned drops in consumer demand
- Inventory visibility can become limited even with hours of planning
- Inventory planning processes that are not based on data, trends, and market analysis could blow up
- Poor management of human resources; A change in personnel, either in-house or at a dealer’s, might affect inventory planning
Summarize this article for me pleaseInventory Planning Methods
Though there are several inventory planning models, we’ve chosen to focus on a few important ones.
Economic Order Quantity (EOQ)
This is the ideal quantity of inventory a business must have to reduce holding costs. If a brand can achieve this, that’s a significant step ahead.
EOQ = √(2 * D * S) / H
This is the formula you need to adapt to your business module, where:
S is the ordering cost or fixed cost
D is the annual quantity demanded
H is the holding cost or variable cost
This formula will tell you the inventory you need at any given time to allow your business to run smoothly. If you feel this is tough to maneuver, you can use a procurement management tool to simplify the task.
Reorder point model
A reorder point is the suggestive point at which a business must reorder inventory to avoid running the risk of low supply.
Let’s take a bakery, for example. The business specializes in brioche and sells out soon after a fresh batch is baked. The customers and the owner are satisfied. Suddenly, trouble arises with butter procurement. The vendor faces power issues, which affects the baking process. The baking house faces a delay in supply. This ultimately leads to a considerable drop in customers.
What happened here? There was no proper reorder point model in place.
To avoid such incidents, having a goods received note system in place is wise. This lets you track your vendors and monitor the supply chain process, helping you determine when to order more stock.
Safe stock planning
This inventory management practice ensures you keep a safe amount of stock in storage so as not to run out during a demand surge. This works much like an insurance policy to keep you afloat.
You must leverage value chain analysis here to boost business longevity and ensure you manage inventory as efficiently as possible. This process gives you an edge over competitors.
Safe stock planning backed by value chain analysis helps predict future demand trends.
ABC analysis
ABC analysis is the process of categorizing inventory into three groups.
- A contributes to the top 20% of your products, which results in 70% of sales
- B contributes to the middle 30% of your products, which results in 20% of sales
- C is the bottom 50% of your products, resulting in 10% of sales
This analysis accelerates proper inventory planning and management. It helps businesses decide what to stock and how much to store. When you analyze your storage needs based on your ABC, you prioritize better.
Now, let’s learn how to make and execute an inventory plan!
Summarize this article for me pleaseHow to Develop and Implement an Inventory Plan
Developing and implementing an inventory plan in your business is a formidable challenge. But here’s a quick step-by-step guide to go about it.
Steps to develop an inventory plan and execute
- Take a list of your products and categorize them
- Research deeply and be thorough in your data analysis. You should know your product intimately and exactly where it sells
- List potential vendors based on preferences, locations, quality, and accessibility. Analyze their performance by having a testing period
- Use an integrated and beginner-friendly order and supply management system
- Create a system that is simple and efficient
- Train employees to follow the system. Track performance regularly
- Track your inventory turnover ratio. This will be your base, which you can tweak as you go based on the data
- Create a reorder point model and safe stocking practices
- Seek a continuous room for improvement with in-depth data analysis and monitoring
- Once you have all this, automate wherever possible
By following these steps and using reliable eCommerce inventory planning software, you can get your inventory planning on track and fuel business growth.
Using ClickUp to plan and manage inventory systems
ClickUp helps you manage and sort inventory efficiently while offering highly customizable features that can be adapted to suit any business.
Take the ClickUp Inventory Management Template, for example. It can effectively handle and customize your requirements. Plus, it’s a highly user-friendly inventory planning tool.
This template can help you in several ways:
- It simplifies organization for you. You can make a list of stock, track vendor deliveries, track customer shipments
- You can check order status and reorder points with precision
- You can create easy-to-access inventory sheets that you can share with employees and vendors to manage the supply chain efficiently
- The template is customizable. This means you can modify and create Custom Fields to manage your inventory, like Next Order, Ops Manager, Ordered, Current Inventory, and Order Quantity
- You can also improve tracking with automation and specific search tags
- It has seven Custom Views—table, timeline, list, order updates, and value, to gain a better understanding and planning of your inventory
Supply chain and inventory management go hand in hand. And ClickUp’s Inventory Template makes tracking the entire supply chain fast, easy, and efficient.
With this template, you can:
- Manage stock levels and orders in real-time
- Track shipments and delivery dates across multiple warehouses
- Analyze trends for better decision-making
This template can streamline the inventory process and reduce human errors, allowing for better forecasting and visibility into inventory levels to identify potential issues.
You can add Custom Statuses (Open and Complete) to monitor the progress of each item in the inventory. Plus, you can use 15 different Custom Attributes, such as Requested by, Quantity Needed, Vendor Location, Reorder Point, and Cost per Unit, to save information about your inventory and easily visualize inventory data.
You can also open six views in different ClickUp configurations, such as Inventory, By Vendor, Vendor Location, Order Form, Start Here, and more, to help you manage your inventory.
Summarize this article for me pleaseOvercome Inventory Management Challenges with ClickUp
Inventory management is an ongoing process, not a one-time effort. Build a list of reliable vendors, communicate your needs clearly, train your employees on the system, monitor and track progress, and continually automate and improve.
But don’t underestimate the importance of adopting inventory planning software like ClickUp. It simplifies all the steps above, making your inventory planning more predictable, secure, and an asset to the business.
Get started with ClickUp today!
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