Why is there so much focus on inventory planning?

Effective inventory planning separates thriving businesses from those struggling with stockouts or excess inventory.

It’s also what distinguishes a well-optimized supply chain from one riddled with inefficiencies.

The next question is, “How can I improve my inventory planning?”

In today’s article, we’ll break down what inventory planning is and how to master it.

Let’s start with the fundamentals and build from there.

What is inventory planning?

Inventory planning ensures your business has the right products available at the right time while keeping costs under control.

By balancing supply and demand, it prevents stock shortages that frustrate customers and avoids excess inventory that ties up cash.

With effective planning, you can improve cash flow, reduce expenses, and maintain consistent product availability to keep operations running smoothly while reducing risks of lost sales, rising storage costs, and wasted products.

Inventory planning objectives

Your inventory planning strategy should focus on achieving specific goals to ensure your business runs efficiently.

✅ Accurate forecasting: Predict demand based on past sales, market trends, and seasonal variations so you never run out of stock or over-purchase.

✅ Cost control: Reduce unnecessary expenses by ordering the right amount of stock and avoiding excessive storage costs.

✅ Efficient storage: Organize inventory to maximize space, improve accessibility, and speed up order fulfillment.

✅ Minimizing stockouts and overstocking: Maintain the right balance between supply and demand to prevent lost sales and unnecessary inventory holding costs.

✅ Optimized order management: Streamline purchasing and replenishment processes to ensure timely stock availability.

✅ Improved supplier coordination: Build strong relationships with suppliers to secure better pricing, faster deliveries, and more reliable inventory replenishment.

✅ Inventory visibility: Maintain real-time insights into stock levels across multiple locations to enhance decision-making.

✅ Reducing waste and obsolescence: To prevent excess inventory from becoming obsolete, implement strategies like FIFO (first-in, first-out) and demand-based ordering.

✅ Enhancing cash flow: Optimizing inventory levels frees up capital and ensures money isn't tied up in unsold stock.

✅ Meeting customer expectations: Keep stock available when customers need it to ensure high satisfaction and repeat business.

How to build an effective inventory plan

Inventory planning isn’t just about counting stock - it’s about making sure your business runs smoothly without unnecessary delays, wasted resources, or lost sales.

Let’s go over the key steps to build an inventory plan that keeps your operations efficient and stress-free.

1. Analyze demand trends

Demand forecasting can help you predict how much stock you need based on past sales, market trends, and customer behavior.

Getting it right ensures you always have enough inventory to meet demand without overstocking and wasting resources.

Here’s how you can improve demand forecasting:

🔍 Analyze historical sales data: Look at past sales reports to identify trends and seasonal patterns in customer demand.

📈 Monitor market trends: Keep track of industry trends, competitor activity, and economic shifts that may influence purchasing behavior.

🛒 Study customer buying patterns: Analyze how often customers buy certain products, what influences their decisions, and how demand fluctuates over time.

🤖 Use AI-powered forecasting tools: Modern inventory software can automate this process by using machine learning to predict future demand more accurately.

Pro tip

Fabrikatör can provide you with advanced forecasting by leveraging AI-driven predictions and manual growth rate adjustments, allowing you to align inventory with future demand accurately.

You can choose between AI-powered forecasting (upcoming feature) that analyzes historical sales, trends, and seasonality or manually set a growth rate based on last year’s sales performance.

Additionally, Fabrikatör enables you to create custom demand plans or use pre-made templates for peak shopping events, ensuring that your inventory strategy is always optimized for upcoming demand fluctuations.

2. Set inventory thresholds

Inventory thresholds help you determine when to reorder stock before you run out or accumulate excess inventory.

Without clear thresholds, you risk stockouts that lead to lost sales or overstocking, which increases storage costs.

Here’s how you can set the right inventory thresholds:

🚨 Establish reorder points: Identify the minimum stock level at which you should place a new order to prevent running out of critical products.

📊 Keep your stock optimized: Maintain enough inventory to meet demand without overordering by considering sales trends, supplier lead times, and seasonal fluctuations.

⚙️ Use automated alerts: Set up inventory management software to notify you when stock reaches the reorder point, ensuring timely restocking.

📦 Adjust based on demand trends: Regularly update your reorder levels based on seasonal fluctuations, sales performance, and supplier lead times.

Pro tip

Fabrikatör’s replenishment feature takes the guesswork out of replenishment by providing precise restock quantity suggestions tailored to your inventory scenarios.

All you need to do is set up custom rules tailored to your supply chain, such as reorder points and ideal quantities, and let Fabrikatör handle the rest.

3. Optimize supplier relationships

Strong supplier relationships ensure you get reliable deliveries, better pricing, and consistent stock availability.

Without dependable suppliers, your business may face delays, quality issues, and unexpected stock shortages.

Here’s how you can strengthen supplier relationships:

🤝 Work with multiple suppliers: Avoid relying on a single supplier by having backups in case of delays or disruptions.

💬 Negotiate better terms: Discuss pricing, order flexibility, and lead times to ensure smooth and cost-effective inventory replenishment.

⏳ Monitor supplier performance: Track on-time deliveries, order accuracy, and response times to evaluate supplier reliability.

🔄 Foster long-term partnerships: Building strong supplier relationships can lead to priority service, better pricing, and increased trust.

Pro tip

Fabrikatör streamlines supplier communication by enabling you to share purchase orders directly via email with customizable subject lines, messages, and attachments in PDF or CSV format.

You can select pre-set templates, modify email content, and manage recipients, ensuring a smooth and efficient ordering process.

4. Implement stock control measures

Stock control ensures that your inventory records are accurate and prevents discrepancies that lead to losses or inefficiencies.

Without proper tracking, your stock levels may become unreliable, resulting in costly errors and wasted resources.

Here’s how you can implement better stock control:

📍 Use barcode scanning or RFID: Automate stock tracking with barcode or RFID systems to reduce manual counting errors.

📉 Perform regular stock audits: Conduct cycle counts or full inventory checks to verify stock accuracy and detect discrepancies.

📂 Centralize inventory data: Use cloud-based inventory management software to keep real-time records accessible from anywhere.

🚀 Implement FIFO or LIFO methods: Organize stock efficiently by selling older items first (FIFO) or managing cost fluctuations effectively (LIFO).

5. Regularly review and adjust

Inventory planning is not a one-time task, as it needs continuous monitoring and improvement.

If you don’t review your strategy regularly, you may end up with outdated stock levels, inaccurate forecasts, or inefficiencies in your supply chain.

Here’s how you can keep your inventory plan optimized:

📊 Track inventory KPIs: Monitor key metrics like turnover rate, carrying costs, and stock accuracy to measure efficiency.

📅 Conduct periodic reviews: Assess inventory performance and adjust reorder points, supplier agreements, and stock levels as needed.

🔄 Adapt to market changes: Keep up with demand fluctuations, seasonal trends, and economic shifts to fine-tune your inventory strategy.

⚙️ Leverage automation & AI: Use data-driven insights from inventory management software to improve forecasting and reduce manual adjustments.

Inventory management methods

Different businesses need tailored inventory management methods since there’s no single approach that works for everyone.

Here are some of the most effective inventory management strategies:

1️⃣ ABC Analysis: You categorize inventory into A (high-value, low-quantity), B (moderate value and quantity), and C (low-value, high-quantity) to prioritize stock control.

2️⃣ Just-in-Time (JIT): You order stock only when needed, reducing storage costs and minimizing waste.

3️⃣ FIFO (First-In, First-Out): The oldest stock is sold or used first, preventing waste and ensuring freshness for perishable goods.

4️⃣ Dropshipping: Instead of keeping stock on hand, you send orders directly to suppliers who handle fulfillment, reducing storage costs.

5️⃣ Economic order quantity (EOQ): Calculates the ideal order quantity that minimizes total inventory costs, balancing holding costs and ordering costs.

6️⃣ Batch tracking: Groups inventory into batches based on production date or lot number, helping with quality control and product recalls.

Pro tip

Fabrikatör enhances ABC analysis by automatically categorizing your products into A (fantastic), B (moderate), C (poor), and an additional fourth category, D (idle - items not sold in the last 30 days), based on their sales performance.

This classification helps you to quickly identify best-selling products, optimize inventory levels, and improve profitability by prioritizing resources where they are most needed.

Which inventory planning KPIs to track?

To measure the success of your inventory strategy, track these key performance indicators (KPIs):

📊 Inventory turnover rate: Shows how often stock is sold and replaced within a given period. A higher turnover indicates efficient inventory management.

📊 Stockout rate: Indicates how often items are out of stock, helping you identify gaps in your inventory planning.

📊 Carrying cost of inventory: Calculates the total cost of holding stock, including storage, insurance, and depreciation.

📊 Days sales of inventory (DSI): Measures how long inventory stays in stock before being sold, helping you assess efficiency.

📊 Order accuracy rate: Tracks the percentage of orders fulfilled correctly without errors, ensuring smooth operations and customer satisfaction.

📊 Backorder rate: Measures the percentage of orders that couldn’t be fulfilled due to stock shortages, highlighting supply chain inefficiencies.

📊 Lead time variability: Evaluates the consistency of supplier lead times, helping businesses adjust reorder schedules to prevent stockouts.

📊 Gross margin return on investment (GMROI): Determines how much profit is generated for each dollar invested in inventory, ensuring financial efficiency.

📊 Sell-through rate: Indicates how quickly a product sells relative to the amount received, helping optimize stock levels and replenishment strategies.

📊 Perfect order rate: Measures the percentage of orders delivered without issues, including delays, errors, or damaged goods, reflecting supply chain efficiency.

📊 Dead stock percentage: This percentage identifies the portion of inventory that hasn’t sold in a set period, helping businesses minimize waste and optimize stock.

📊 Supplier fill rate: Assesses how reliably suppliers fulfill purchase orders on time and in full, impacting inventory availability.

📊 Return rate: Tracks the percentage of inventory returned by customers, helping identify quality issues or misalignment with customer expectations.

How can automation simplify your inventory planning?

Manual inventory management is time-consuming and increases the risk of errors, making automation essential for streamlining processes and improving accuracy.

Here’s how automation enhances inventory planning:

🤖 Real-time tracking: Get instant updates on stock levels so you always know what’s available.

🤖 Eliminating spreadsheets: Relying on spreadsheets for inventory tracking leads to outdated data, human errors, and inefficiencies, whereas automation provides real-time insights and seamless stock management.

🤖 Automated reordering: Set up automatic reorder points to restock inventory without manual intervention.

🤖 AI-powered forecasting: Use machine learning to predict demand more accurately based on historical data.

🤖 Centralized data management: Integrate inventory tracking with sales, purchasing, and fulfillment systems for seamless operations.

Choosing the right inventory planning software

Not all inventory planning software is the same, so choosing the best one for your business requires considering key factors:

1️⃣ Ease of integration: Choose software that connects with your existing accounting, e-commerce, and warehouse management tools, ensuring smooth data flow between sales channels, inventory, and fulfillment systems.

2️⃣ Automation features: Look for tools that offer demand forecasting, real-time tracking, and auto-reordering, as well as automated purchase order generation and low-stock alerts to streamline replenishment.

3️⃣ Scalability: Pick software that grows with your business, whether you're a small retailer or a large enterprise, and supports multi-location inventory tracking and flexible fulfillment options.

4️⃣ User-friendly interface: Opt for an intuitive system that simplifies inventory management instead of making it more complicated, offering visual dashboards, real-time analytics, and seamless workflow automation.

5️⃣ Supplier management tools: Choose a solution that helps track supplier performance, lead times, and pricing trends to optimize procurement and ensure reliable restocking.

6️⃣ Inventory performance insights: To improve purchasing decisions, go beyond basic stock tracking with analytics highlighting slow-moving items, high-demand products, and overall inventory efficiency.

How can Fabrikatör help you with inventory planning?

Fabrikatör is an inventory management solution for Shopify users, helping businesses maintain optimal stock levels, prevent stockouts, and streamline replenishment with data-driven insights.

With its intelligent automation features, you can:

✨ Forecast demand with precision by leveraging AI-driven predictions or manually adjusting growth rates based on historical data.

✨ Create dynamic inventory plans with customizable templates for peak shopping seasons like Black Friday, Christmas, or any business-specific event.

✨ Automate supply planning by generating purchase order recommendations based on demand forecasts, supplier lead times, and replenishment cycles.

✨ Optimize restocking frequency with configurable replenishment intervals, ensuring steady inventory flow without excessive overstock.

✨ Prevent stockouts with adaptive replenishment using AI-powered recommendations that factor in sales trends, lead times, and seasonal fluctuations.

✨ Streamline purchase order management by quickly creating, tracking, and updating POs while maintaining real-time stock accuracy in Shopify.

✨ Enable backorders seamlessly by automatically linking incoming stock to purchase orders, allowing customers to continue purchasing while inventory is in transit.

✨ Gain actionable insights with 100+ inventory metrics, real-time analytics, and customizable dashboards to improve stock control and decision-making.

✨ Ensure seamless integrations with Shopify, QuickBooks, Katana, and Klaviyo to enhance workflows, automate stock updates, and improve supply chain visibility.

And much more.

🚀 Ready to take control of your inventory planning?

Try Fabrikatör or request a demo today!