Inventory Optimization Using Demand Planning

inventory optimization

Throughout 2019, many business gurus and management professionals glibly implied that the upcoming year – 2020 – would be the year of clarity. While 2020 was record-breaking in significant ways, 2020 will likely be best remembered as the year most businesses were challenged to revise their business models (on the fly) to meet perhaps the most unexpected, fragmented, and business disruption in modern memory. Businesses have needed to learn how to –

  • Optimize inventories to meet uncertain supply chain interruptions
  • Work within a reduced and often remotely located labor market.

But businesses, have mostly had to rely on (and admit to their increased reliance) technology to conduct meetings, sales calls, or customer service – frankly, to keep businesses afloat amid ridiculously challenging economic conditions.

But with these recent disruptions to traditional business modeling of inventory control comes the unique opportunity to modify processes that may help to implement positive improvements like –

  • Expeditious order fulfillment
  • The prevention of backorders
  • The potential of increased revenue/profits from an existing customer base
  • Better customer service overall

Customers Love The Convenience and Flexibility of Ordering

Industries have responded to the set of unique converging events of 2020 by proactively seeking to strengthen each company’s ability to serve its client base with greater efficiency and speed. Ultimately, this requires avoiding inventory and supply chain disruptions – using a managerial inventory control technique known as demand planning.

Inventory Optimization using Demand Planning

Demand planning is a vital step within the managerial function of supply chain management. Demand planning includes the observation and close examination of internal & external factors that can potentially impact product availability and thus customer demand.

While demand planning has always consciously focused its efforts on market metrics and observable patterns in inventory and customer behavior, the future of demand planning will need to find innovative ways to integrate powerful software (and the amazing reports and insights it generates).

Modern demand planners must supplement historical sales data with real-time & actual usage data to stay ahead of the demand curve and determine what influences customer demand.

Modern inventory optimization techniques require the anticipation of a more accurately depicted demand. Powerful computers allow for the algorithmic interpretation of the market’s demand holistically, rather than using those older techniques that awkwardly (and often blindly) attempted to fulfill future inventory needs.

Demand Planning Tools/Techniques

Consider these tried-and-true demand planning techniques to help meet your business objectives –

Use All Available Data

Data used in inventory optimization analyses must include metrics (and thus, insights) from the business subspecialties that may, in part, consist of –

  • Marketing Teams
  • Sales Teams
  • Financial Insights
  • Operational Data

Look for Patterns

Pattern recognition is a valuable managerial tool as it can generate accurate sales forecasts (and thus, create accurate inventory models) using both more familiar versions of market metrics/intelligence, plus the results generated from sophisticated statistical, algorithmic demand planning models.

Demand Planning Requires Quick Reactions

Demand planning is most effective when companies select the right tools to analyze relevant data. 2020 has taught businesses that to meet unexpected demand changes – real-time, ‘point of use,’ inventory consumption data is critical if a company is to react quickly enough to prevent (or at least mitigate) potential inventory disruptions and shortages.

Inventory Optimization – The Take-away

Market processes are forever in flux.

Businesses work within this ever-evolving economic environment, so to remain competitive, businesses – through demand planning initiatives, must remain committed to an ongoing approach. In other words, business management strategies must include a demand planning component, to be most effective.