Without inventory planning as a wholesale distributor, you'll struggle to maintain healthy inventory levels, be profitable and satisfy customers. It can make or break your business if you can't get it right. In order to implement inventory planning, you'll need a number of tools and processes to put you on the path to a strong inventory management program.
What is Inventory Planning?
Inventory planning requires people and process to successfully maintain the inventory levels that are right for your business and supply chain. It involves consideration of your product lead times, cash flow and customer demand. By combining inventory planning with inventory controls, business owners will successfully fulfill customer orders and lead a more profitable business overall.
Below, you'll find several strategies to help with you with inventory planning.
1. Use Inventory Management Software
Using cloud-based wholesale inventory management software is the foundation needed to build a highly-efficient wholesale distribution business. Use software that is purpose designed for inventory management, otherwise you’ll end up frustrated with what you chose or a lack of software adoption among the employees that should be using it. While it might be tempting to manage inventory counts in an Excel spreadsheet, that method will cause you more harm than good in the long run. It’s also impossible to keep it updated in real time for employees and customers. And yes—today’s customers expect to see what you have in stock online.
2. Demand Planning
This method requires a look back into the past—specifically product trends—and the future. By reviewing which items move the fastest and slowest, combined with historical or seasonal trends, one can determine how products or product families should be stocked. For items that move quickly year-round, you’ll want to maintain a healthy minimum stock level and place orders regularly with that supplier. The more accurate your forecasts, the better your inventory turn ratio will be.
3. Establish a Reorder Point
In order to avoid being out of stock, establish a reorder point, especially for fast moving products. A reorder point is the minimum stock level that is maintained for a product or product family. Be sure to establish a reorder point, or minimum stock level, that takes into account for the lead time to get new inventory. In fact, your reorder point should be slightly higher than your reorder point. In essence, your reorder point should help you ship orders to customers without interruption, which naturally is a factor in your customer repurchase rate. You can calculate your reorder point by multiplying the average lead time (in days) by your average daily usage of that item. Add what safety stock you have available to that number and you have your reorder point.
4. Use Inventory Management KPIs
Key Performance Indicators (KPIs) are a quantifiable way to measure how well you’re doing when it comes to inventory planning. One of the most important KPIs to manage as a wholesale distributor is inventory turnover ratio. This number reflects how often inventory is sold and replaced within a given time period. Divide the cost of goods sold (COGS) or net sales by your average inventory. The resulting number indicates how many times your company has sold and replaced that inventory within the time period you selected. It basically helps you measure how fast you’re selling inventory. Compare your average with the industry average and you’ll be able to tell if there’s room for improvement. If you’re moving inventory faster than the industry average, then you’ll likely outpace your competitors in terms of sales and profitability in that category.
5. Drop Ship as You Grow
You might not think of drop shipping as an inventory planning tool, but it can help you deal with inventory until you're ready to store goods in your own warehouse. Think of it as a growth management tool. Until you have the cash flow and a warehouse, utilizing drop shipping from your suppliers is a great way to grow sales until you’re ready to stock those items. Drop shipping does typically include a service fee from the vendors that you are buying from, but it does also ensure that you’ll always be able to deliver on time, every time. Drop shipping, therefore, is a great way to grow your brand and business while leaving the logistics to someone else.
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Categories: Inventory Management