Inventory Planning and Control: Tackling a $1.8 Trillion Problem

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The ongoing coronavirus pandemic exposed a lack of robust inventory planning and control policies within many eCommerce businesses. While operations could manage ongoing changes, significant shifts and unprecedented change showed that most operations were at significant risk. You likely felt some of this crunch, even if your inventory was largely safe and secure.

Improper inventory management cost companies an estimated $1.8 trillion due to stockouts and overstocks in 2020. That is roughly 10.3% of all retail sales. This, unfortunately, offset many prior gains that companies had made in their inventory utilization. Typically those came from pursuing just-in-time practices helped cut costs. Cutting inbound shipments as close to the wire as possible was helping companies save an average of 17% on inventory costs pre-pandemic. But that proved to be a short-sighted mitigation strategy that now calls for meaningful change.

Inventory planning and control practices are touted as the way to address these shortfalls. It can help you look at past data and current trends. To help, let’s look at the potential for this approach, including:

  • Defining inventory planning and control
  • Explaining their importance to eCommerce
  • Noting six areas where you see a direct benefit
  • Understanding limitations of inventory management
  • And discovering how partners can help
inventory management

What are inventory planning and control?

Inventory planning and control are practices that help your company understand its inventory needs. These prioritize planning to have goods in stock to meet demand. You’ll also see capabilities to review inventory levels to see if you’re holding too much. They’re the core elements of inventory management. And, you’ll want to combine them with robust forecasting to identify product levels for current orders, safety stock to manage unexpected events, and broader plans for storage, growth, and scaling.

Inventory planning primarily focuses on analytics and forecasting to determine inventory levels. It needs past sales data, seasonal trend information, promotions, and other supply chain variables. Inventory control is the practice of turning that analysis into the physical effort to have the necessary stock.

Planning gives you the estimates and control are the steps you’ll take to purchase that inventory, store it, and have the capability to use it for orders.

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The importance of inventory planning and control

Inventory planning and control practices keep an eCommerce business afloat. They ensure you’ve allocated enough capital in inventory to match orders and fill those orders. Inventory planning will cover your specific products and the boxes, tape, infill, and other materials required to finish a package. Thankfully, modern software makes it easy to track everything required, down to printer ink and labels at packing stations.

Best practices here improve each phase in an inventory lifecycle. Here, they allow you to optimize the money you spend and the profit you generate.

Here’s a quick look at that lifecycle

Inventory Planning and Control arrows
  • Purchasing: Inventory planning helps you know how much to buy based on predicting order volume. You can minimize excess to avoid storage fees while building out appropriate safety stock.
  • Storing: Knowing your inventory requirements and order volume can help you understand how much storage you’ll need. This is physical space, which scales as you grow. This can often push you into needing to outsource to a 3PL like Red Stag Fulfillment. Ask for a partner with millions of square feet of storage.
  • Using: Inventory control requires management tools that help you maintain an accurate count of goods on hand. Proper inventory planning and control will also track parts, equipment, and materials needed to pack your orders.
  • Reordering: Companies need to replenish goods as they’re used. Thankfully, many inventory planning and control systems can automate this process, even adjusting based on recent data. Reorders can leverage your
  • Forecasting: This is an ongoing process of looking at past and current sales data. That way, you can determine inventory levels, SKU changes, and other shifts. You’ll anticipate needs and adjust timing to ensure you’ve got the stock you need and optimize overall spending. Forecasting plays a role in the other steps, and forecasts can be updated to help at any point.

For more information, check out our deep guide on inventory forecasting

Foundational concepts for reliable planning

Inventory planning and control require your company to execute a few key practices. These are designed to work together continuously and seamlessly. When everything is going right, this approach to inventory will help you fill orders and keep customers happy. That way you’re encouraging repeat buyers and recurring revenue.

First, inventory controls require robust demand forecasting. As mentioned above, this is an ongoing review and analysis of current and past sales data. Pairing that action with an understanding of seasonal shifts and marketing efforts will help your business better predict demand.

Then, tracking usage and sales data will enable you to verify what forecasts were accurate. Here, you’ll be able to adjust models and lower or raise inventory to meet demand. The aim is to control your costs by optimizing inventory on hand, while not overspending on a SKU or understanding and having stockouts. Tracking can also point out your big sellers or slow-moving inventory, letting you adjust levels to minimize expense per product.

The final core element of inventory planning and control is training. Your team needs to understand these concepts and how you execute on them to get things right. Plus, your warehouse will need to create processes and requirements for how products and materials like infill are used. As you streamline these, efficiency increases, and you can start to optimize other aspects of your storage and fulfillment efforts.

What inventory planning can’t do

Inventory planning and control processes can sometimes feel like a cure-all. While they can help your efforts and protect revenue, planning has some shortfalls to understand.

The first and most straightforward to understand is the time needed for these efforts. Planning takes considerable time and resources. Integrating tools and technology means you’ll need an IT expert or service provider to link up several systems to use real-time data. It also takes time to create forecasts and analytics to run and check that they create valuable reports.

forecasting systems for production and inventory control

Inventory planning will pull some of your team away from other efforts. You might need to pause initiatives or scale up hiring to build out the work. If you’re working across multiple suppliers or locations, more people and time will be needed to create and verify your control policies.

Finally, employees will have to follow defined procedures for these programs to run successfully. You must train your team. And every company needs robust change management efforts to ensure those changes are followed.

There are also efforts outside the software you use. Inventory planning requires accurate inventory data to work. Theft and shrinkage can throw off your ability to manage inventory effectively. If you’re outsourcing fulfillment and inventory management, then get guarantees to protect you again shrinkage.

What benefits do inventory planning and control offer?

Inventory planning and control processes are vital to a successful eCommerce enterprise. Inventory is the lifeblood of your operations, and matching SKU volume to sales volume helps you generate profit while avoiding sinking too much money into your stock. Getting forecasts helps avoid having an underperforming product line. When everything is running smoothly, you’ll also see a few benefits beyond just streamlining how you spend money.

Inventory utilization

  • Reduce stockouts and backorders
  • Reduce overstocks and long-term storage costs
  • Monitor for potential losses due to spoilage
  • Minimize excess and reduce inventory counts as demands change

Operational effectiveness

  • Improve warehouse layout to bring top-selling products closer to pack stations
  • Understand and predict space needs to store goods safely
  • Enhance storage location choice based on sales and seasonality
  • Create inventory counts for better tracking to discourage shrinkage

Customer expectations

  • Monitor customers and markets to scale as eCommerce scales
  • Know what you have and where to offer more accurate fulfillment timelines at lower costs
  • Supports accurate order information to speed up customer service requests
  • Track for trends in returns, refunds, and other issues
Inventory Planning and Control in the warehouse

How can a partner like Red Stag help?

Achieving those benefits can be difficult for companies to manage on their own. Our experts are available to help you accomplish the many different tasks required to start inventory planning and control, including setting up the tools required to manage it. When you hand your fulfillment over to Red Stag, you get access to leading dashboards, inventory accuracy guarantees, streamlined and reduced costs, and the ability to scale as you need.

Our inventory data and analytics support can help you create more accurate demand forecasts. If you’re struggling with understanding and using historical data, we can help build out models and develop business intelligence. Our mix of carriers and warehouse locations adds more optimization layers, allowing you to control inventory levels while also reducing shipping costs through shipping zone reductions.

Plus, we’ll collaborate with you to review sales data and create storage options to match your inventory models. If you’re focused on cost reduction and have maintained a just-in-time inventory approach through COVID, we’ll give you the space you need while still reaching 96% of American homes within two business days.

If you’re scaling up to meet a just-in-case model that stocks more inventory to avoid disruptions, Red Stag has room for you to grow. Our cubic storage pricing means you’ll only be paying for the physical space your products use,. That way, you can store more inventory without having to worry about pallet optimization or other concerns.

Let us be a reliable data source, fulfillment, and support for your inventory needs. It’s our mission and our privilege to see partners grow and succeed even in today’s fast-paced, ever-changing eCommerce ecosystem.

The bottom line

Inventory Planning and Control questions

Inventory distortion costs the world’s businesses more than $1.8 trillion each year, which is roughly the GDP of Canada. Lacking inventory planning and control policies means your business could be a larger portion of that loss this year. Or you can start prioritizing data and inventory management to control your investment and reduce risks.

Every day that you let inventory allocation and spending be governed by chance increases the likelihood of wasting money on improper inventory. Red Stag has experts on hand to help you understand inventory and order volume, including how to analyze and prep for potential changes. We’ll work with you to power accurate inventory forecasts with reliable planning tools.

Don’t leave money on the table by experiencing stockouts. Don’t lose revenue by investing too much in slow-moving inventory. Find the right inventory mix and protect your investments by getting expert help on your inventory and operations.

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Red Stag Fulfillment is a 3PL founded by ecommerce operators, and built for scaling businesses.

A team of fulfillment fanatics who care about our clients’ businesses like their own. We see things from our customers’ perspective, and have the guarantees to prove it.

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