Business

Why planning is important for Inventory Management

3 Mins read

Every organization engaged in the product business, whether in its production, sale or trade, is required to hold inventory. Holding sufficient inventory is crucial for them in one or another form. Different types of companies engaged in different businesses are into keeping inventories in distinct forms. Organizations involved in production and manufacturing products hold inventories in raw materials, spare parts, and finished goods. On the contrary, trading companies are into keeping inventories of finished goods. The entire process depends on the business model.

Inventory planning is associated while managing the inventory of raw materials. Inventory planning generally implies analyzing the demand for a particular product in the market and then deciding when to order for more raw materials.

Companies generally follow traditional approaches to manage their inventory. Inventory planning is based on the calculation of a few crucial things. Inventory managers calculate different models. They evaluate whether enough inventory is ready or not with them.

Inventory Management Approaches

Traditional Inventory Management implies two different approaches. They are:

Economic Order Quantity – EOQ

Continuous Order Model

Periodic Ordering

EOQ

The method of Economic Order Quantity determines what quantity is regarded as optimal so that the total inventory cost is minimized. With this method, total inventory cost is minimized. EOQ is the basic model that is used by inventory managers to plan effectively. More models are developed further based on the model of EOQ. They are the Production Quantity Model and Quantity Discount Model.

Continuous Order Model

This model works on the model of ordering a fixed quantity. In this process, a trigger for fixed quantity replenishment is released. This is done when the current inventory reaches the level of predetermined safety. Re-ordering is triggered after that, and the inventory managers reorder the minimum amount required.

Periodic System Model

In this model, the order is placed based on when the order is placed after a fixed period.

Planning for inventory affects a company in numerous ways. It is used to determine the cash flow of an organization directly, and it also profits margins. Inventory planning is a crucial aspect for the success of any business. You must be thinking about what inventory planning can do to your business and how it benefits it. Inventory planning implies several advantages, as this function comes from the inventory management department.

Planning is all you need to manage inventory

Business owners and managers should consider the robust planning of inventory for their business. It helps to create forecasts for your business, which ensures that business ascertains how much it should produce. Additionally, it reflects what quantity businesses should look forward to supplying inventory to their customers, so that market demand is met. When a business has an effective inventory planning within, it can attain several benefits.

Planning for inventory management is a vital step that helps managers determine what steps to integrate to plan for better inventory management. It is a very significant aspect. Managers ought to implement correct inventory planning and control strategies. With proper planning, businesses ensure higher profits, better cash flow, and reduced concerns with inventory shrinkage problems.

The above mentioned three benefits of the right inventory planning are interrelated. The reduction of stock shrinkage transforms to enhance gross profits since the market demand for the products of a company is successfully met. This process ensures a high rate of return on the invested capital that further provides better cash flow.

This additional capacity means that a business can successfully achieve its set objectives and goals. It is crucial to point out the benefits of better planning of inventory, and also control is the key. Companies’ goals and objectives are skillfully achieved. With proper planning to manage sufficient inventory, organizations can efficiently control goods. This is implied to the processes right from production until they are sold to the ultimate consumers.

Bottom line

Learning efficient inventory management ensures that brands have the capacity to fulfilling orders on time and accurately. With a strategic plan in place, the entire process of overseeing and managing inventory is streamlined. When inventory value increases beyond the limit, it can break a business. Hence, it is vital to keep inventory up to the required limit.

Author Bio

This is Sharon Winget, Staff Writer with GoodFirms, a review and rating platform of top IT companies & software. A tech geek at heart, I firmly believe technology can transform societies. I enjoy blogging about web design, email marketing, and content marketing.

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