Aug 20, 2021 5 Min READ

Inventory Planning 101: 5 Tips To Build A Successful Method
Matt Rickerby

Matthew Rickerby is the Director of Marketing at Extensiv, the leading solution for multichannel, multi-warehouse D2C brands. For the past ten years, he’s covered e-commerce topics ranging from SEO to supply chain management.

5 Min READ
Inventory Planning 101: 5 Tips To Build A Successful Method


Companies who source, produce, or manufacture raw materials have a responsibility to analyze future demand and decide how much they need to reorder. Commonly referred to as inventory planning, this process can augment a brand’s efforts in demand forecasting while also helping mitigate inventory costs. Generally speaking, effective inventory planning offers a direct route toward less overhead, improved product mix, happier customers, and greater revenue. 

So whether you’re running a small business or managing a multichannel network, developing a solid inventory plan will be essential to your continued profitability and success.


What is inventory planning? 

Inventory planning is the process of optimizing inventory levels using demand forecasting to reduce cost. Inventory planning helps companies order the right amount and type of inventory to match consumer demand. 

By having the right SKUs available at the right time, and in the right location, your company can reduce its storage costs, optimize inventory allocation, and avoid both surplus and overstock situations. In other words, a trusted inventory planning approach helps ecommerce businesses meet demand while cutting down on costs at the same time. 

Benefits of inventory planning and inventory control

Warehouse worker checking stocks

Inventory planning (in conjunction with inventory control) is vital to supply chain management, as it helps product-based brands purchase the ideal amount of stock and determine how often to reorder. 

The best inventory planning strategies make sure to incorporate demand forecasting — that is, creating predictions for anticipated customer demand, which then informs your ongoing replenishment schedules. When done right, inventory planning streamlines your supply chain, prevents overselling, minimizes stockouts, and supports a more efficient cashflow, as well.

Inventory planning optimizes your supply chain 

With the help of inventory planning, your company can guarantee its raw materials, work-in-progress items, and finished goods easily move from the source to the end consumer. That’s because dedicated inventory planning can assist your business in buying the right amount of stock, meaning it reinforces a steady supply chain workflow.

More succinctly, inventory planning limits bottlenecks and oversights, and instead ensures the manufacturing or production of specific goods is always moving along at the proper pace (without any abrupt interruptions or delays).

Inventory planning helps avoid overselling 

Overselling can occur when an online store receives a customer order for a product that’s actually unavailable within their current stock levels. Sometimes, overselling is the result of recordkeeping errors — especially if inventory audits or analysis are conducted manually. Fortunately, inventory planning helps retailers avoid overselling altogether, by leveraging inventory forecasting for more accurate predictions of future demand. 

In that way, inventory planning makes sure you have enough inventory on hand at any given time. Ultimately this results in enhanced customer satisfaction, since shoppers can trust your company to have whatever they need, whenever they need it.

Inventory planning minimizes stockouts 

Stockouts are often initiated by fluctuating customer demand, inaccurate forecasts, and varying lead times from your suppliers. But regardless of why they happen, stockouts are certainly something to fend off as much as possible. Because inventory planning works together with demand forecasting, you can largely offset the risk of encountering stockout situations. 

On top of that, inventory planning can also help you maintain a healthy amount of safety stock; in the event consumer demand spikes or lead times are pushed back, safety stock acts as a buffer of sorts (so you can still follow through on your fulfillment schedule). 

Inventory planning supports more efficient cashflow

Inventory is typically the largest asset for a retail business, with the majority of cashflow tied up in whichever products a company is selling. By utilizing inventory planning, brands can keep their production running smoothly and save money on costly last-minute purchases (i.e. avoid unnecessary overstocks) — which is just one way planning can directly impact your profits.

What’s more, inventory planning lowers the costs of keeping items in stock and provides for  enough materials to make and sell consumer goods. And when you’re able to rotate stock faster, you’re sure to see a boost to your bottom line, as well. 

5 tips to level up your inventory planning

Workers in Distribution Warehouse

Well-executed inventory planning involves quite a few variables, all of which are important to consider as you’re building out your unique planning strategy. The top five factors to take into account include hiring the right team, prioritizing optimization, consolidating inventory data, exercising inventory control, and forecasting as well as you can.

Hire the right team with clear roles and responsibilities  

When it comes to inventory planning, the technological components don’t exactly tell the whole story. Even with access to innovative inventory software, if your team isn’t well-versed in how to use it, your business won’t achieve maximum results. The truth is, management software is only useful when there’s a strong knowledge of how to navigate it. 

That’s why it’s so crucial to implement thorough training on these systems, and to give your team clear roles and responsibilities (so they can really master what they’re doing and encourage the greatest outcomes).

Make optimization part of your inventory planning process 

Inventory optimization is rooted in maintaining the right inventory levels to meet demand, keep logistics costs low, and avoid common inventory issues like stockouts and backordered goods. 

Within the realm of ecommerce, inventory optimization is a best practice for noticeable improvements with stock control and storage capabilities.

When paired with inventory planning, inventory optimization simplifies forecasting and replenishment duties, and works to keep ordering costs and/or general overhead low.


Consolidate the data within your inventory system

There’s no denying that effective inventory planning requires a wealth of data from a variety of sources — and bringing all of this together can be a pretty complex task. Your team will need to consolidate its historical inventory data and reports dispersed among different sales orders, accounting platforms, suppliers, or point of sale (POS) systems. 

If not automated, this process can be time-consuming and error-prone, not to mention cause biased forecasting (which leads to overstocking, understocking, or missed sales opportunities).

Improve inventory control and warehouse management 

Controlling inventory that’s stored across multiple locations can prove a real challenge, but the majority of modern ecommerce merchants pull their inventory items from multiple sites (like brick-and-mortar stores, distribution centers, or various warehouses). Tracking inventory at each of these locations is likely to add complexity to both inventory management and order fulfillment. 

And yet, using an inventory planning strategy helps you know exactly where to allocate your goods at all times, so you never limit productivity or disrupt the flow of your supply chains. 

Forecast inventory as well as you can 

Making accurate forecasting predictions is never easy, but if you don’t have the right KPIs in place, it becomes particularly difficult. With that said, when you apply the right tools and metrics to support your inventory planning, you can really take the guesswork out of forecasting and prevent excess inventory.

Comprehensive, informed inventory planning can alleviate the stress of unpredictable market variations and unforeseen changes in customer demand — which makes forecasting considerably less complicated than it would be trying to crunch those numbers all on your own. 

3 ways inventory planning software can help 

While inventory management technology has plenty of noteworthy qualities, there are a few advantages that are especially beneficial to improving your inventory planning. The following are three ways inventory software (like Extensiv Order Manager) can upgrade your planning process with ease. 

Easily analyze inventory data to improve efficiency

Analyzing your company’s historical inventory data is the best way to recognize and resolve inefficiencies within your supply chain or order fulfillment. Inventory analysis helps guarantee you have the right amount of inventory on your shelves, while simultaneously reducing your operational costs and promoting better demand forecasting, too. 

Extensiv Order Manager knows inventory forecasting is integral to inventory planning, which is why our customers receive help with their forecasting efforts and safety stock and reorder point setting. When using these components in partnership with inventory analysis, you can optimize inventory turnover, avoid overselling, and deliver a positive customer experience with every order. 

Adapt your inventory plan in real-time: Balance efficiency and accuracy

Flexibility within inventory management processes is paramount, because in essence, this points to a company’s ability to pivot. Since customer demand can change on a whim, and supplier lead times can run into significant disruptions, being able to adapt to an ever-changing ecommerce environment will likely be the backbone of your success. 

Thankfully, Extensiv Order Manager users have access to automated, real-time inventory updates which help brands make adjustments to their inventory plan at a moment’s notice. Extensiv Order Manager’s automations also acknowledge and learn from your inventory replenishment patterns, to make smart reordering recommendations so you never miss a sale.

Learn from demand trends for future inventory planning

With quality, detailed reporting on demand trends, you can enjoy a more holistic view into your business performance and customer habits to then influence future inventory planning. Moreover, observing demand trends can provide clarity around your cost of goods, your working capital, and your inventory replenishment. 

Extensiv Order Manager’s leading inventory management system presents these trends in an applicable and approachable way, so you can easily use them to amplify your inventory planning. For example, by accounting for supply chain and inventory trends, Extensiv users can define future service levels and allow for more accuracy within the planning itself.


Inventory Planning FAQs

How to improve inventory planning?

With the help of inventory management software, retailers can analyze inventory data to improve inefficiencies, adapt inventory plans in real-time, and learn from demand trends for future inventory planning. Skubana’s software helps business owners simplify their inventory management (regardless of how complex their operations are), and supports ecommerce brands with their inventory planning at every stage.

Do I need technology to plan my inventory?

While you can certainly conduct inventory planning by hand, using technology makes the entire process much less time-consuming and more accurate overall. Software solutions are typically equipped with automations to facilitate inventory planning, and include features that encourage optimization and organization among your various selling channels or warehouse locations.

What are inventory planning techniques?

Some of today’s most popular inventory planning techniques are: economic order quantity (EOQ), minimum order quantity (MOQ), just-in-time (JIT), and ABC analysis. Each technique offers its own benefits, though some may align with your business needs better than others; many companies use a few different methods in tandem with one another, as well.

What are the types of inventory?

The three main types of inventory are raw materials, work-in-progress (WIP) items, and finished goods. Although there are other kinds of inventory on the market, these three categories are the most popular or prevalent, and can be found on a company’s official financial accounts.

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