How to Overcome Inventory Planning Challenges

Many retailers don’t understand the necessity of inventory planning until an inciting event—like a major promotion resulting in out-of-stocks or the inability to move dust-collecting items off the shelves—threatens their business’ health and growth. While inventory planning is challenging for businesses of all sizes (we see out-of-stock alerts on big box sites all the time), it’s not impossible to create flexible forecasts that allow you to optimize your inventory and accelerate growth.

Here’s how you can overcome some of the major challenges that prohibit effective inventory planning.

Taxonomize Your Business

When you’re working with many products, some of which might cannibalize others, it’s difficult to optimize sales. It’s tough to examine existing styles for sales or markdown opportunities without the ability to compare how products have sold to similar offerings in the past. In order to make smart decisions in low information environments, businesses need the ability to go up a level in granularity to see trends at a higher level.

No matter how you categorize your inventory, you need to organize your products into hierarchies. Taxonomizing your business isn’t easy. For example, when you think of a sandal with a heel, it’s unclear as to whether the shoe belongs in the sandal category or high heel category.

To start, think about how you’re already segmenting your business when you order, see opportunities, or naturally tend to sort product. Do you categorize by fabric (knits vs. wovens vs. denim)? By gender? By end use? Don’t stray too far from what feels natural and remember that the different categories need to be mutually exclusive.

Whichever you choose, come up with a plan and stick to it. Once you’ve created a taxonomy that works for your business, you’ll gain easier access to information about specific products as well as groups of products, which will be helpful in creating accurate forecasts.  

Centralize Disparate Data

Before a planner can begin to build out a forecast, (s)he needs to gather and analyze historical data. This presents a huge challenge for many companies as this historical data can be siloed and often lives within disparate systems.

It’s imperative to get your data all in one place. With various spreadsheets floating around and different teams accessing them and updating them (perhaps without the knowledge of those in other roles who use the same sheets), it’s easy for data to become inaccurate. With all your systems integrated and data aggregated in one place and updated in real-time, all teams can access the most up-to-date information to make the best decisions for your business.

Make More Informed Predictions

In addition to the analytics involved in effective inventory planning, there are some aspects that involve more guesswork, even for large retailers with an endless budget for software and headcount. There is no magical equation for even the most experienced inventory planner to predict optimal inventory investments 6-12 months in advance. Since planners work cross-departmentally, it’s important to know as quickly as possible—especially during a peak sales season—if adjustments must be made to a forecast.

Once you’ve created taxonomies and have your data all in one place, it becomes easier to create forecasts based on historical inventory levels and performance—thus, minimizing the guesswork. Knowing you were out of stock would show that there is a sales opportunity for the following year; whereas, without historical inventory knowledge, you might assume sales were just bad.   

The bottom line is, inventory is expensive. It’s difficult for growing businesses to bite the bullet and invest in the people and tools necessary to plan effectively, but if you’re hoping to profitably scale your business, it’s an absolute must. Think about unproductive inventory sitting on your shelves. What if you could have that inventory in cash to do all the other things that would benefit your business, like hiring a photographer for enticing product shots for your website, investing in a social media strategy to increase your reach, or paying a designer to optimize your website for a delightful user experience? Cash on hand is critical to growing businesses, and you can have more of it when you gain the ability to create flexible forecasts and plans rooted in data and strategy.

For more information on how to accurately forecast demand, make adjustments to a plan, and overcome the challenges of inventory planning, download A Guide to Inventory Planning. To learn more about how Stitch can help you with inventory planning, learn more about our product here.

Amanda Nelson

Amanda is a retail and merchandising strategy consultant based in Los Angeles, providing guidance on buying and inventory management, assortment planning, pricing, category expansion and organizational optimization for apparel manufacturers and retailers.

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