Good inventory planning lies at the heart of every successful e-commerce business, yet many retailers stumble right out of the gate.
Too often, they rely on a gut instinct or ‘hunch’ when it comes to deciding which stock to order and when. Many base their entire approach on outdated data that’s buried in overcomplicated (and inaccurate) spreadsheets.
It’s a recipe for disaster, leading to problems with overstock, cash flow and customer experience.
To mark the launch of our 7-day Inventory Planning Bootcamp, we’re taking a closer look at some of the most common reasons merchants fail at inventory planning – along with proven strategies to turn things around.
What is inventory planning?
Inventory planning is the process of working out how much stock you need and when you need it. It’s essential to ensure you have just enough products to meet customer demand, without risking overstock or stockouts (which can both have a devastating impact on your cash flow).
Inventory planning involves analyzing historical sales, consumer trends, promotions and supplier lead times to predict future stock requirements.
What are the benefits?
Inventory planning plays a key role in the health and bottom line of your business.
- Reduces excess stock and associated storage costs
- Prevents stockouts and lost sales
- Supports healthy cash flow
- Ensures customer satisfaction and fosters loyalty
- Optimizes supply chain operations
- Minimizes waste and supports eco initiatives
- Boosts overall profitability
6 reasons retailers fail when it comes to inventory planning
1. Overestimated demand
It’s easy to be over optimistic about how much inventory you will sell – but as one of our panellists reminded us in our recent Back to Basics Masterclass, ‘hope is not a strategy’.
Overestimating demand based on inaccurate predictions of future demand leads to excess inventory. This ties up capital, increases holding costs and often results in the need for markdowns or write-offs.
In fact, holding excess stock at a time when cash flow is already tricky and costs are high can prove fatal for your business.
2. Underestimated lead times
Ordering the right items is important, but ordering them in time is especially so. Failing to accurately account for supplier lead times when planning inventory is a common mistake that can have devastating impact, especially if seasonal or trend-focussed items are involved.
Underestimated lead times can initially result in stockouts – which impact both revenue and customer experience – but then, when a large order turns up later than required, you can easily end up with excess stock if the demand has passed.
Even if you do consider supplier lead times, it’s important to factor in actual lead time (not simply the lead time your suppliers quote). This requires supplier performance to be proactively monitored and factored into forecasts (your inventory planning software should offer this functionality).
3. Poor demand forecasting
Whether due to insufficient data or a flawed approach (*cough* spreadsheets *cough*), poor demand forecasting is a major reason why many e-commerce retailers fall at the hurdle of inventory planning.
Unreliable forecasts inevitably lead to imbalances in your inventory levels, causing both stockouts and excess stock.
Failure to properly account for seasonal demand fluctuations and market trends results in inventory mismatches, which can have a major impact on your bottom line.
4. Lack of inventory visibility
In the current e-commerce landscape, consumer trends – and therefore your inventory needs – can literally change overnight.
Retailers that lack real-time visibility of their inventory often run into problems.
Without real-time inventory visibilty, merchants struggle to track stock levels accurately and plan restocking and order fulfilment accordingly. It can also lead to major problems with stockouts or excess inventory.
5. Manual methods (or inadequate tech)
When it comes to staying ahead of your competitors on inventory planning, having the right method and tech tools at your disposal is everything.
Unfortunately, this is where too many retailers fall down. Relying on manual techniques (like spreadsheets and/or guesswork) for inventory planning or poor, unfit-for-purpose software can cause more problems that it solves.
It puts you on the back foot when ordering for trends and seasons and dramatically increases the risk of human error.
3 winning strategies to turn your inventory planning around
If any of the mistakes we mentioned above sound worryingly familiar, don’t panic. There are proven strategies you can follow to transform your inventory planning for the better.
1. Implement Inventory Planner by Sage
OK, we’re biased. But Inventory Planner isn’t a top-rated inventory planning tool for nothing. The software is a complete game-changer for retailers that want to automate demand forecasting, optimize stock levels and streamline reordering processes.
It reveals exactly which inventory to order and when, based on an accurate calculation of how much you will sell.
The forecasts factor in supplier timescales, seasonality and promotions alongside historical sales data, which are then turned into easy-to-understand buying recommendations.
Inventory Planner enables merchants to simplify or automate a number of tedious, time-consuming tasks, freeing up tons of time for more important things and dramatically boosting productivity across your team.
2. Real-time inventory tracking
It’s time to bid farewell to basic, outdated tools and clunky, complex spreadsheets. You need to stop relying on guesswork and gut feelings when you order, too. To transform your inventory planning, you need reliable, accurate data that is updated in real-time for all channels and warehouses.
Invest in market-leading inventory planning tools that provide real-time updates on inventory levels across all sales channels and locations to avoid costly errors and make every penny you invest in inventory go further.
3. Automate inventory processes
Placing POs and reordering hundreds or even thousands of products for multiple locations from multiple suppliers can take up days every month – unless you use automated reordering.
With the right inventory planning software, you can set up automated reordering based on predefined thresholds to ensure timely restocking and prevent stockouts. Automated POs can also save tons of time.
£30M athlesiure clothing brand AYBL is saving thousands of hours every year by doing this on Inventory Planner.
Founder and CEO Reiss Edgerton says: “Inventory Planner takes care of so much, including automatic replenishment, that I can be quite hands off with merchandising and purchasing. It easily saves us around 100 hours a month – or thousands of hours a year!”
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