Would you like to hear a one-word horror story? Stockout.
Just hearing that word can make retailers shiver—and for good reason. Stockouts can cost your business hundreds of thousands of dollars every year. The good news? These struggles are preventable: Three-quarters of all stockouts are caused by inventory planning issues.
Imagine your business is an orchestra. Your sales, warehousing, suppliers, and more are all different instruments. Stockouts (and other inventory woes) happen when your departments play in different keys. Your business can only run smoothly if all the parts of your supply chain are playing together in perfect harmony.
That’s where inventory planning solutions come into play.
This post will provide you with guidance on common inventory management methods and top options for inventory planning software to help you synchronize sales pace and inventory. We’ll also discuss some common pitfalls of inventory planning you’ll want to avoid to keep your business running smoothly.
Why Do You Need an Inventory Planning Solution?
Before we dive into the solutions you can use to handle your inventory planning better, let’s first discuss inventory planning in general. What is inventory planning? Inventory planning is how your business can determine the right amount of stock to order, when to replenish, and how much stock to keep on hand. With proper inventory planning processes and tools, your business can save money and consistently meet your customers’ needs.
Finding the right inventory planning solution provides your business with crucial benefits, including:
- Increased Sales: With proper inventory planning, you’ll have fewer stockouts. When your customers can always purchase the product they’re looking for from your business, you’ll see an increase in sales.
- Increased Margins: Overstock and deadstock cause you to pay for more warehouse space than you actually need to store products for your business. Inventory planning can help you avoid these struggles, only paying for the warehouse space you need.
- Time Savings: Inventory planning solutions can help you avoid manual work, saving you time and enabling you to focus your energy on other efforts that matter to your business.
- Capital Allocation: When your capital is not invested in stock that is sitting in your warehouse (and not selling), you can allocate your capital in areas more productive for your business.
The benefits of proper inventory planning can’t be understated, but we must also discuss the risks associated with poor inventory planning. Poor inventory management consistently ranks among the top reasons retailers and small businesses fail. Without the right inventory planning solution, you may find yourself flirting with disaster.
Best Inventory Planning Solutions
- Blue Ridge: Best for large enterprise retailers
- Cogsy: Best for smaller, early-stage retailers
- Flieber: Best for direct to consumer and multichannel retailers
Inventory Management Methods
One step of inventory planning is proper inventory management. You can use a number of methods to manage your inventory. Let’s take a look at four different inventory management methods you might consider using as a part of your inventory planning processes.
Economic Order Quantity
Economic Order Quantity refers to the ideal amount of inventory your business should purchase to minimize your costs.
To calculate your quantity using this method, you will use the below formula:
Quantity=2(Demand x Order cost)Holding costs
This method works well for businesses where demand, ordering, and holding costs are consistent. If your business is subject to seasonality, trends, or other factors that might impact that consistency, this method might not be sufficient for your use case.
Minimum Order Quantity
Minimum Order Quantity requires you to calculate the lowest number of units your suppliers are willing to supply to you in a single order. This is most relevant for wholesalers selling in bulk, though a direct-to-consumer seller will encounter the flip side: If you want to sell one thousand units, but your supplier’s MOQ is 1,500, you will need to order 1,500 units.
If your suppliers have a high MOQ that means you need to plan to have more inventory on hand. If you are working with suppliers who have set a low MOQ, you have more control, but you will need to ensure you have enough inventory on hand to cover orders.
Related Read: It’s time to stop guessing and get control of long lead times in the apparel industry
ABC Analysis is a method of inventory management that requires you to rank inventory items based on demand, cost, and risk data. You will separate your inventory into classes, helping you to determine which items are most important to your business.
You can calculate ABC inventory analysis using this formula:
(Annual units sold) x (Cost per unit=Annual value per product)
ABC Analysis can help you optimize your inventory, price products appropriately, and allocate resources in a manner that best suits your business. However, ABC Analysis is not enough on its own to properly plan for your inventory needs.
Just-in-Time (JIT) Inventory
Just-in-Time (JIT) Inventory is a solution that requires you to understand the production schedules of your suppliers. In this strategy, you order inventory to arrive exactly when it is needed, reducing your storage costs.
This method requires you to engage in robust inventory forecasting and planning processes to ensure you have the right amount of stock available to meet your customers’ demand at any given time.
One downside of JIT inventory is that it can be challenging to account for supply chain disruptions using this method. A delay from one supplier can cause a breakdown of your entire process.
Though all of these methods may be valuable to your inventory planning efforts, they are not sufficient on their own as your business scales. In addition to inventory management methods such as these, you will need to implement inventory planning software to reap the benefits of proper inventory planning.
Top 3 Inventory Planning Software Solutions Reviewed
You will need to use inventory planning software in conjunction with your chosen inventory planning method to ensure you can accurately forecast your inventory needs, avoiding stockouts, overstock, and deadstock.
Inventory planning software lets you automate and optimize complex and critical inventory processes, offering you insight into when you need to purchase or transfer inventory to support sales across multiple channels.
Let’s take a look at three top solutions for inventory planning that you can use for your business:
1. Blue Ridge
Blue Ridge offers a fully configurable inventory planning solution complete with features like complex analytics and a simple-to-use interface. Blue Ridge is the best fit for larger, Fortune 1000 companies. It is a more expensive solution, which may put it out of reach for smaller, growing businesses.
This solution specifically targets industries like automotive, HVAC, food service, electrical, and janitorial. If you operate a large enterprise in any of these industries, this may be an inventory planning solution to consider.
Blue Ridge has many positive reviews online, averaging 4.8 out of 5 stars on Capterra.
Cogsy’s inventory planning software is a solid entry-level solution. Their platform includes features like new product planning, replenishment alerts, and backorder selling features. Their inventory planning solution lets you map out different growth scenarios.
This software solution is great for businesses that need a quick fix for operational inefficiencies. However, it’s not necessarily the best fit for anyone looking to improve demand planning and scale with their inventory planning solution.
Cogsy has only been around for about a year, and at this time has limited reviews online.
Flieber uses advanced data analytics to help you synchronize sales velocity, supply chain operations, and inventory management.
With Flieber you can manipulate your forecast for each product in your inventory. You can apply different algorithms to examine multiple scenarios or export and make changes before reimporting the data for more refined forecasting. You can also add events to your forecast, accounting for promotions, holidays, and more.
Flieber is the best solution for direct-to-consumer sellers looking to increase their revenue without increasing their workload.
“Flieber enabled us to plan our financials throughout the year in a way that allowed us to not only save money but also have our products available 100% of the time. We had no idea how much money we were losing due to stockouts and Flieber solved that with a cost that is just a fraction of those losses.” -Basics Hardware, Flieber Customer
Pitfalls to Avoid While Developing Your Inventory Planning Strategy
Inventory planning is critical to your business’s success. To properly implement your inventory planning strategy, you will want to avoid falling into these three pitfalls.
Pitfall 1: Mistakes in KPI Selection
KPIs are essential to any implementation process. Without the right KPIs and metrics, it will be difficult to determine the success of your new solution.
When selecting KPIs to track for your inventory planning implementation, it is important to prioritize your goals and select only the KPIs that matter. Just as selecting too few KPIs may result in uncertainty about your efforts’ success, too many KPIs can muddy the water and over-complicate your results.
We recommend two KPIs for this purpose:
- Customer availability rate: This figure is measured by the percentage of products available for customers to purchase at a given time.
- Stock life dependency: Your stock life calculations, also sometimes called stock coverage or stock rotation, are based on the number of dates it takes your stock of a given product to run out.
Pitfall 2: Manual Inventory Management
The second pitfall you may fall victim to while engaging in inventory planning efforts is relying on manual tracking. Manual planning carries many disadvantages, such as:
- Blind Spots: When you plan manually, you won’t be able to see everything at once. These blind spots can result in stockouts or other errors that impact sales.
- Human Error: Manual calculations also carry the risk of human error. Across industries, researchers estimate that sixty to eighty percent of all mishaps are the result of human error.
- Time Drain: Manual calculations are expensive, not only in terms of blind spots and errors but in terms of worker hours. Every hour you or your staff spend manually managing your inventory is an hour that could have been spent on high-leverage activities that help grow your business.
Pitfall 3: Overcomplicated Tech Stack
The last pitfall you may run into is an overcomplicated tech stack. To engage in the best inventory planning methods possible, your business may onboard multiple disparate tools, each claiming to be the best at what it does. The challenge with this is that it silos your data inconveniently, forcing you to log in to multiple systems to see the full picture.
Additionally, an overcomplicated tech stack can muddy the source of truth in your organization. You need a single tool that helps you visualize all your key data in a single dashboard. Even the best solution won’t do everything you need, but the right solution for your business will integrate with your ERP, sales channels, production, freight forwarders, and more.
Nailing Replenishment with Inventory Planning Solutions
Proper replenishment and inventory planning solutions are vital to run your business effectively and efficiently. To plan for inventory needs accurately and consistently, you will need to have a plan and the right tools in place.
Flieber’s inventory planning software is designed for brands selling direct-to-consumer. Our system uses advanced data analytics and machine learning to synchronize your sales and inventory, helping you make critical supply chain decisions and enabling you to plan your inventory needs with ease.
To see Flieber in action and see how we can help you reduce stockout, overstock, and other inventory-related woes, schedule a free demo today.