October 2, 2023

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Can Having Too Much Inventory Harm Your Business?

4 min read
Do You Have Too Much Inventory? Here's How to Know. | Now

Keeping your retail, food, and beverage inventories at optimal levels might take time and effort. Consumer demand is not constant throughout the year and varies due to seasonality, festivals, events, price adjustments, and promotional changes. This is where organizations may manage appropriate supply levels by using automated inventory planning software.

Managing the inventory ideally is a complex and challenging task. Stocking excess inventory (overstocking) can lead to increased costs, and stocking little (understocking) can lead to the risk of running out of items. You can manage your business growth effectively by adopting the best inventory planning practices with inventory forecasting software, reducing overstocking, and avoiding stockouts.

How to Plan Inventory Effectively?

Here are a few strategies for effectively managing your inventory and growing your company.

Master Your Lead Times

The lead time is the period between the day you place the order and the day the supplier delivers the goods. Inventory planning is significantly impacted by it. The main aim of the inventory is to cover the supplier’s lead times. If suppliers could supply goods to the warehouse in zero days of lead times, keeping an inventory would be optional. Retailers can save the entire cost, but it is not possible. Therefore, the aim remains to reduce the lead times to the shortest possible to meet consumer demand and lessen the time between reimbursing for stock and getting the revenue. Through this, you can plan the correct stock levels in your inventory and prevent stockouts.

Integrate an Inventory Planning Solution

It might be challenging to keep an inventory at the optimum level. Retailers often face issues of overstocking and understocking. If you keep a small inventory, you can experience stockouts, leading to disgruntled consumers, which will be bad for business and result in losses. In contrast, if you overstock products, you’ll have to pay the extra cost and take up a lot of room.

This can be prevented with effective inventory planning software. You can rapidly identify which individual things need to be ordered if you have visibility into low inventory levels, which will help you avoid stockouts.

Set Reorder Points

The reorder point is the amount of stock below which the inventory should not go. The time needed to place an order before the stock exceeds the threshold is part of a perfect inventory reorder point. You should immediately place a replenishment order if one of your items has reached the reorder point. Reorder points have the benefit of eliminating the possibility of stockouts.

You can compute the reorder point by calculating the lead time demand days and estimating safety stock in days. The total safety stock and lead time demand produce the reorder point. Each product has a varied reorder point because each has a different demand rate and delivery time for replenishment.

Focus on Accurate Demand Forecasting

Based on prior sales data reports, accurate demand forecasting can reduce stockouts and overstock. By avoiding overstocking and understocking, you can place orders for products that will satisfy customer demand while minimizing inventory costs. Facts analysis also enables you to make well-informed selections based on the data from prior months and predict the accurate quantity of your inventory. You won’t need to order enormous stock amounts because there will be just enough to satisfy demand in this manner. You can maintain the appropriate stock by analyzing your company’s trends.

Vendor Managed Inventory

A retailer provides a supplier with specific information in vendor-managed inventory, and the supplier keeps a specific inventory level. You can focus on growing your company as the burden of daily inventory planning and replenishment orders are removed. You no longer need to place last-minute product orders or stress whether the suppliers will deliver the stock on time because it always ensures optimal stock. As the supplier controls the resupply lead times, you can reduce safety stock levels while saving money.

Adopt a Just in Time Inventory System

You may order everything as needed with a just-in-time inventory, eliminating the need to keep any stock in your warehouse. JIT refers to having all necessary goods on hand at precisely the appropriate moment and location. You don’t need to keep any safety stock on hand because you can get what you purchase immediately rather than waiting weeks or even months for it to arrive. However, because JIT relies on low inventory levels, stockouts may result. A JIT inventory might not meet an unexpected spike in client demand.

Dynamic Safety Stock

Stockouts happen due to shifting consumer demand, inaccurate forecasting, and varying lead times. You can reduce the danger of stockouts by keeping a safe stock level and extra inventory to prevent stockouts.

Many of the tasks above are difficult to complete, and only with decent inventory planning software can one guarantee optimal stock. This is where Fountain9’s AI-based inventory forecasting software, which predicts accurate demand forecasting and enables organizations to keep an ideal inventory, helps retail companies plan inventory efficiently. Inventory forecasting software can help track stock levels and reduce overstocking and stockouts.

About the Company

Through automated procurement and replenishment planning schedules, Kronoscope, an inventory planning tool from Fountain9, assists shops in meeting consumer demand. By precisely forecasting stockouts and recommending suitable safety threshold levels, Kronoscope may assist firms in maximizing their working capital. Businesses can reduce the difficulty of managing extensive inventories by optimally stocking their inventory while considering the anticipated demand for the forthcoming period. By proactively recognizing SKUs that run the danger of building up at various points along the supply chain, Kronoscope also avoids overstocking. With the aid of this software, businesses can meet customer expectations and make more money overall.

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