Inventory planning is extremely complicated. It is hard to prognosticate the exact inventory you need because it all boils down to sales. You can take an idea by tracking previous years’ trends, but they cannot let you gain real insight into current needs. If you overbuy inventory, it will affect your working capital. You will struggle to meet your business operations. If you underbuy inventory, you will fail to meet your customers’ needs.

When the demand period is high, it becomes more challenging to ensure you get a sufficient supply of inventory as and when you need.

Why is inventory planning a must?

Here are the reasons why inventory planning is necessary:

• It is essential to increase customer satisfaction. Running out of stock when demand is high will leave your customers frustrated. They will most likely rush to your competitors. Alarm bells should go off when you have insufficient inventory because you are inadvertently pushing your customers towards competitors.
• It is crucial for maximising revenues. Having the right product during the peak season will help increase your sales. As a result, you will see a significant boost in profitability. In case of insufficient inventory, you will face poor sales and poor revenues.
• Another reason why inventory planning is a must is that it helps avoid overstocking and understocking, which in turn saves a lot of money. Working capital does not get compromised because of poor decisions.
• It is important to maintain a balance between the demand and supply of inventory because it has a direct impact on cash flow.

How to do inventory planning

Here is how you can buy inventory before high-demand periods:

• Identify high-demand periods

First off, you should determine high-demand periods. Unless you know when demands are high, how will you be able to decide on the top-up of inventory? The most common high-demand periods include:

• Seasonal events such as Christmas and summer vacation
• Promotional campaigns on Black Friday, Cyber Monday and end-of-season sales
• Industry-specific cycles, such as fashion launches and agricultural harvest seasons.
• Unexpected trends, such as sudden market shifts.

There are various tools that you can use to forecast demand, such as:

• Historical sales data will help analyse past performance during similar periods. This will help you know the estimated inventory value. Of course, it cannot give you an exact number that you need, but funding the short gap is quite easy.
• You should also do market research. This will help you analyse the peak time when demands are high. By knowing the preferences of your customers and changes in market trends, you will be able to better decide how much inventory you need during the peak season.
• Nowadays, AI-driven tools are helping businesses discover the latest marketing trends. AI technology can help forecast demand to help you know when the best time is to buy inventory. Make sure that you use reliable AI tools.

Once you identify high-demand periods, you can better plan inventory.

• Calculate the optimal quantity

Once you have determined when the appropriate time is to buy inventory, the next step is to figure out how much to buy. If you miscalculate inventory, you will end up with either blocked working capital, disrupting the cash flow or declining sales that lead to reduced profitability.

You can consider using the economic order quantity model to calculate the order size you need. However, it is still enjoined that you calculate it by taking into account the following factors:

• Storage capacity
• Cash flow constraints
• Product shelf life
• Demand variability

During the peak season, you should increase order quantities. It should be slightly more than the projected amount.

• Build safety stock

You should try building safety stock. It will help you cushion the blow when you face unexpected demands. This is also recommended because sometimes it may take more time to supply inventory. In order to calculate safety stock, you should carefully consider the following two factors:

• Desired service level
• Variability in demand and lead time

However, excessive safety stock is not recommended at all, as it can lead to overstocking. This will, in turn, disrupt cash flow.

Ways to buy inventory effectively

Here are the ways to purchase inventory effectively:

• Supplier relationships

You should try establishing a strong relationship with suppliers. This will help you negotiate terms when buying the inventory in bulk. In case you do not have enough funds to buy inventory, you can consider inventory financing in the UK.

• Diversification

Do not rely on a single supplier. If you try connecting with multiple suppliers, you will be able to reduce risks.

• Integrate technology

Take the help of inventory management software to track how much inventory is available. This will help you know how much size of order you need to place. Implement an automated reordering system. You might be running out of cash to buy inventory at the time of reordering. Consider using a merchant cash advance in the UK. It will help you get a lump sum based on your debit and credit card sales.

• Financial planning

You should be financially prepared during the peak season. Consider financing options when you do not have much upfront capital. There are several financial options other than inventory financing.

Common mistakes you should avoid

Here are the mistakes to avoid when reordering inventory:

• Be mindful about stockpiling. Excessive purchase of inventory can block working capital.
• Never underestimate demand. Lost sales opportunities will have far-reaching effects.
• Do not ignore market trends, as they will help you know consumer preferences.
• Poor communication with suppliers is another problem you should avoid. It might cause delays in inventory procurement.

The final word

Inventory planning can be quite challenging when demands are high, but with the help of AI tools and an inventory management system, you can easily decide the size of reordered inventory.

However, it is vital that you do not overstock and understock because in both cases your business will end up.