Inventory planning is one of the most important steps in retail planning. It provides the baseline for evaluating the strength of your sales and inventory levels. In this guide, we'll go into great detail about inventory planning.
Inventory Planning: What is it?
Inventory planning is the process of forecasting how many units of a product you should order, how long the product will physically last, and how long to expect it to sell before being replaced by a new product.
As you can imagine, planning is crucial to your business. If you order too much, you will tie up your capital, spend more on storage, and risk losing money in the event that the product doesn't sell. On the other hand, if you don't order enough, then you could experience stockouts and sales losses.
As such, you need to strike a balance, which is the aim of an inventory plan.
Why Is Inventory Planning Important?
Now, let's dive into details about why inventory planning is important:
Simplify Internal Operations
Internal operations determine how well your company works internally and influences how well your company operates. Without an inventory system (which can be a physical inventory or just a simple spreadsheet), you won't have visibility into the many daily operations of your business.
Additionally, an efficient inventory plan makes ordering and managing inventory a much simpler task. It tells the whole team what they need to order and what they need to sell, reducing the time spent coordinating and forecasting sales.
Boost Customer Satisfaction
Understanding your customers' needs and expectations is vital to serving your customers well. An effective inventory plan will help you understand what your customers' demands are, when they will make their demands, and how many demands they will make.
Ultimately, this will help you avoid stockouts and improve customer satisfaction by avoiding delays in responding to their requests.
Help Control Costs
No business can survive without controlling costs. For retail businesses, the cost of stockouts, the cost of ordering too much inventory, and the cost of administering the whole process are all high.
An effective inventory plan will help you avoid these costs in the first place and control them once they occur.
Help in Scoring Growth Opportunities
A well-planned inventory will help you take the next steps toward growth. You can use past sales data to forecast future sales, you can use product-level data to estimate the size of the market for your product, and you can use current inventory levels to predict your business's ability to meet future market demand.
Inventory Planning vs. Inventory Management
It is important to understand that inventory planning is one part of inventory management. In fact, inventory management is a broad term that encompasses inventory planning, inventory control, inventory reconciliation, and inventory optimisation.
When we say inventory management, we are referring to the steps involved in the planning, controlling, reconciling and optimising the whole inventory cycle.
The Bottom Line
Inventory planning is an important step in running your business. It helps you avoid overstocking and understocking and provides a platform for making important decisions.
With a reliable Gold Coast accountant, you can keep your inventory in check. Let us help you here at The Ecommerce Accountant. We are the best business advisors for online stores and influencers today. Get in touch with us.