You already know that properly planning your inventory – and not ordering based on a ‘hunch’ or an out of date spreadsheet – is the best way to avoid costly issues with overstock and stockouts, as well cut costs and boost profit.
But, if you’re new to e-commerce or running a smaller company, how on earth do you get started?
That’s the question we set out to answer in our latest masterclass called How to Master the Basics of Inventory Planning.
This back-to-basics episode was hosted by Chloë Thomas, host of the eCommerce Masterplan podcast, and featured Freelance SME Merchandiser, Alison Metcalfe former Merchandise Manager for John Lewis and Mary Wiegand, Founder & CEO of inventory planning agency Boon LLC. They were joined by Jill Liliedahl, Senior Industry Marketing Director for Retail at Sage.
Why is inventory planning so vital?
There are lots of reasons why inventory planning is so critical to the success of all retail businesses. To kick off the masterclass, our panellists revealed their own number one rationale for implementing it.
For Jill, it all comes back to having a healthy bank balance. She said: “All roads lead to cash flow. Inventory is the biggest expense for many businesses. You can’t afford to get it wrong.”
In Mary’s experience, inventory planning is vital for being strategic about growth. “Inventory planning is the key to making data-driven decisions across your business,” she said.
Alison made the important point that inventory planning can make or break a business. She said: “I’ve seen many companies go under because they put their money in the wrong stock.”
Understanding key principles
When it comes to getting started with inventory planning in your retail business, there are some key principles to get your head around. Our panellists spent some time explaining key terms in a simple, easy-to-understand way, including:
- Demand forecasting
- Inventory turnover
- Inventory accuracy
- Seasonal planning
One of the most enlightening sections was the discussion of the biggest mistakes merchants make when they start inventory planning. Here are some of the highlights:
1. ‘Hope is not a strategy’
Mary shone a light on the vital need to rely on data about the sales you can actually expect, not the ones you hope to have. As she put it: “Hope is not a strategy. You also can’t just set and forget your inventory planning. It’s something you need to adapt and evolve as every season progresses.”
2. Failing to factor in out of stocks
Having the data is one thing, being able to interpret it properly is another – especially if you run a business that’s experienced stockouts or overstocks. As Jill said in the session: “Has a product not sold well because it’s been out of stock or because demand has been low? This is vital to understand. You need the ability to factor in your out of stock days when forecasting future demand. Otherwise, you won’t order enough and end up in a vicious cycle.”
3. Be honest about performance
When a product doesn’t sell as well as you hope, it’s easy to keep hanging on to it in case a sudden rush of customers comes along. However, it’s important to be honest and realistic to avoid excess stock tying up cash for too long. As Alison explained: “If the customers haven’t come by the time you forecast they would, you need to have an honest conversation and take rapid action.”
The panellists went on to share a solid, simple strategy merchants can count on to nail their inventory planning, including a discussion of the best tech tools for easy inventory planning to consider.
Want to hear what they had to say? Catch the full webinar on-demand now.