Without stock, an ecommerce business is not a business at all. The products you have on hand and ready to sell are the most integral part of your online store. That’s why keeping close track of exactly what you have on hand is one of the most important aspects of running a successful e-commerce shop. Let’s dig into what this practice—known as inventory planning—is exactly, what it is not, and how to do it well for maximum business success.
What is Inventory Planning?
Having stock to sell ensures you can satisfy customer demands and stay in business. But it’s having the right amount of stock on hand that can be tricky. If you have too much, the value of your stock is reduced and you may not be able to sell it all. If you have too little, you aren’t making as much money as you could and you’re likely disappointing customers.
Inventory planning, then, is the practice of balancing, controlling, and organizing your stock on hand. Doing so successfully can help you cut costs while meeting customer demands. Specific tasks that fall under the category of inventory planning include:
- Storing stock
- Moving and organizing stock within your facility
- Fulfilling orders within your facility
- Ensuring the quality of your inventory
- Recording inventory in accounting books
The Importance of Inventory Planning
Again, the overall success of your business depends on proper inventory planning. Specifically, it can help you:
#1. Simplify internal operations
Knowing exactly what you have on hand will help you be more organized with your inventory overall. For example, storing stock in a convenient and accessible way will make it easier to track down the specific products a customer has ordered. If employees can easily locate stock, they can prepare and ship orders with speed and accuracy. That means your business can run that much more smoothly and efficiently.
#2. Improve customer satisfaction levels
The modern consumer now expects nearly instant gratification when they make an online purchase. Proper inventory planning can help you provide this in the ecommerce setting, because it ensures you can fulfill orders quickly and get products to customers faster. As a result, your business’s reputation is likely to improve, which can help you win new business. In fact, a December 2021 report published by Review Trackers found that 94% of customers have been dissuaded from making a purchase because of a negative review. The better service you can provide, the better your reviews. Eliminating inventory issues can be a major step in helping you get there.
#3. Perform effective quality control
If you aren’t carefully tracking how much stock you have, you’re probably not very familiar with its quality, either. The more closely you pay attention to the stock on hand, the more likely you are to be aware of any quality issues. Regular inventory planning generally goes hand in hand with regular quality control, so you can ensure you’re shipping only the best products to your customers.
#4. Prevent overselling
If you’re an ecommerce merchant who sells through multiple channels, you may have experienced overselling before. Overselling is the act of selling more units of an item than can be fulfilled or delivered. This issue may be caused by a delay in stock updates—or poor inventory planning in general. Finding out they won’t be receiving an item they paid for is likely to upset any customer, and can lead to them to buy from your competitors instead in the future.
#5. Control costs
The core of inventory planning is managing the units of stock on hand. When you overstock, you’re left with outdated and sometimes unusable excess inventory. When you understock, you’re missing out on sales opportunities. Proper inventory planning can help you find the balance between these two undesirable ends of the spectrum so you can avoid unnecessary losses and maximize your profits.
Inventory Planning vs. Inventory Management
Though they’re similar concepts, inventory management and inventory planning aren’t quite the same. Inventory management involves taking a holistic overview of your stock, from ordering products to their movement on the supply chain. Inventory planning is a subsection of inventory management that only focuses on the day-to-day of managing stock inside a facility.
In other words, management focuses on the big picture; planning is a more zoomed-in view of daily operations. Both are important aspects of building a reliable supply chain, however. Since all small changes in your warehouse will cause a ripple effect outward, skillful inventory planning will keep your business on the right track.
Inventory Planning vs. Inventory Forecasting
Another task that falls under the umbrella of inventory management is inventory forecasting. Also known as demand planning, inventory forecasting is the act of using past data to predict necessary inventory levels for a future period of time. This practice factors in lead times, supply and demand, and market trends.
These concepts differ mainly in terms of when they’re used. Inventory planning is actively used when stock is in a warehouse, while inventory forecasting involves making predictions about future stock.
Choosing the Right Inventory Planning Software
For any growing business, planning your inventory with a pen and paper won’t be enough. Because inventory levels are typically dynamic and change quickly, it’s far easier and more efficient to do inventory planning with software that allows you to control the entire inventory-management process.
These types of systems are usually cloud-based databases that contain information about all products, stock levels, and costs. Most good inventory management systems can use this information to help you make purchasing decisions and manage your inventory strategy. For a reliable and easy-to-use option, try Shypyard’s inventory management system.
When first implementing your inventory management system, keep these tips in mind for best results:
- Consider pain points with your existing inventory planning systems (e.g. locations, travel time, and any equipment).
- Collect data about your current stock. Record existing units and discard old stock.
- Set KPIs and specific inventory-planning goals.
- Log all data into your inventory management software.
Now that your inventory planning system is set up and all the data is in your software, here are some key metrics you may want to identify:
- Reorder point
- Inventory turnover rate
- Dead stock value
- Inventory availability by SKU
- Dollar value of available stock
One last tip: If you have a vendor or receive products from a specific supplier, it may be useful to create a vendor agreement with them. Vendor agreements are written contracts that set payment and shipping arrangements. These will help you plan when to make inventory purchases based on how long they may take to arrive. In addition, vendor agreements may include clauses about their return policies, and cutting costs if you have unsold items.
Shypyard: Inventory planning made simple
We hope the above introduction has helped you understand more about inventory planning and its importance. If you’re ready to take control of your business’s inventory, consider Shypyard. We offer customized inventory-planning features and easy integration with any third-party logistics platform (3PL), warehouse management system (WMS), or inventory management system. Shypyard can help you find the balance between overstock and understock throughout turbulent periods.
If you’re using ecommerce platforms like Amazon, WooCommerce, BigCommerce, etc., we also offer custom tandem inventory-planning services. Feel free to write to us at email@example.com about your specific inventory concerns, and a sales specialist will contact you. For more information on inventory management, check out some of our other blog posts.
Ready to start expertly planning your ecommerce business’s inventory? Book a demo call with the Shypyard team today!
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