{"id":143,"date":"2021-06-23T14:50:02","date_gmt":"2021-06-23T19:50:02","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/inventory-planning\/"},"modified":"2025-10-09T21:49:18","modified_gmt":"2025-10-09T21:49:18","slug":"inventory-planning","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/inventory-planning\/","title":{"rendered":"A Quick Guide to Inventory Planning for Ecommerce"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is inventory planning?<\/a><\/p>\n\n\n\n

Why is inventory planning important for ecommerce?<\/a><\/p>\n\n\n\n

What are the benefits of inventory planning?<\/a><\/p>\n\n\n\n

What are the challenges of inventory planning?<\/a><\/p>\n\n\n\n

Inventory planning methods to implement<\/a><\/p>\n\n\n\n

Inventory management planning with ShipBob (in 3 steps)<\/a><\/p>\n\n\n\n

Conclusion<\/a><\/p>\n\n\n\n

Inventory planning FAQs<\/a><\/p>\n\n\n\n

<\/a><\/p>\n<\/div>\n\n\n\n

\u201cBy failing to prepare, you are preparing to fail.\u201d <\/em><\/p>\n\n\n\n

The same notion holds true when it comes to running an online store.<\/p>\n\n\n\n

Behind every successful ecommerce business, there is a lot of strategic supply chain planning<\/a> involved \u2014 especially when it comes to inventory.<\/p>\n\n\n\n

In ecommerce, inventory is your biggest asset. Without proper inventory planning, it can result in some serious business repercussions, ranging from increased logistics costs<\/a> to major stockouts, to delays in shipping orders. <\/span><\/p>\n\n\n\n

When done right, inventory planning helps online stores reduce costs, save time, and streamline their ecommerce supply chain<\/a>. That way, customer expectations are consistently met and businesses can stay profitable.  <\/span><\/p>\n\n\n\n

Learn the ins and outs of inventory planning, including common inventory management challenges and how the right tools, technology, and data can help make planning much easier. <\/span><\/p>\n\n\n\n

What is inventory planning?<\/h2>\n\n\n\n

Inventory planning is the process of optimising inventory levels to meet demand and optimise internal costs. <\/span><\/p>\n\n\n\n

An important part of supply chain management<\/a>, inventory planning ensures your supply chain runs smoothly. It involves several processes and tasks, including inventory forecasting, storage optimisation<\/a>, inventory tracking, and more. <\/span><\/p>\n\n\n\n

Why is inventory planning important for ecommerce?<\/h2>\n\n\n\n

When you first start your business, you might be able to fulfil orders from home and manage ecommerce inventory<\/a> without putting much time or thought into inventory planning.<\/span><\/p>\n\n\n\n

But as your business grows, the more inventory you will have to order, manage, replenish, store, and prepare to sell. <\/span><\/p>\n\n\n\n

Since inventory levels change constantly throughout the supply chain, it can be a challenge to maintain an optimal amount of inventory to meet demand, especially since demand continuously fluctuates. <\/span><\/p>\n\n\n\n

But taking the time to plan, you can make better judgment calls on how much inventory on hand you should have, when to reorder more inventory, and how long inventory takes to receive and prepare for fulfilment. <\/span><\/p>\n\n\n\n

Lastly, inventory planning not only minimises overall costs, but it ensures you can deliver a great customer experience. It can help to avoid out-of-stock issues and delays in fulfilment, so items ordered can be picked, packed, and shipped as soon as possible.<\/span><\/p>\n\n\n\n

What are the benefits of inventory planning?<\/h2>\n\n\n\n

There are many benefits to<\/span> inventory<\/span> planning, but at the crux of it all, it\u2019s about attaining <\/span>stock control<\/span><\/a> and making the right inventory decisions to meet demand and remain profitable. Below <\/span>are the top benefits of inventory planning. <\/span><\/p>\n\n\n\n

1. Provides better cash flow<\/h3>\n\n\n\n

Your total inventory costs, which includes money spent on holding and storing inventory, is a huge expense for retail businesses. It can collectively amount to about 20% to 30%<\/a> of your total inventory expenses. <\/span><\/p>\n\n\n\n

Inventory planning enables you to use <\/span>inventory financing<\/span><\/a> more judiciously. For example, when you order just enough stock to meet future demand, you avoid overstocking, so too much capital isn\u2019t tied up in inventory. <\/span><\/p>\n\n\n\n

Inventory planning also ensures that <\/span>inventory accounting<\/span><\/a> will go smoother during tax season<\/span>, and it definitely makes pulling accurate inventory reports<\/a> much easier. Ultimately, inventory planning enables you to make better decisions, so you can grow your business faster. <\/span><\/p>\n\n\n\n

\n

\u201cWe utilise ShipBob\u2019s Inventory API, which allows us to programmatically retrieve real-time data on how many units of each product are currently stored at ShipBob\u2019s warehouses. <\/span><\/em><\/p>\n\n\n\n

We currently use this API to generate custom reports to tie this inventory data into our accounting platforms.\u201d<\/span><\/em><\/p>\n\n\n\n

Waveform Lighting Team<\/span><\/a><\/p>\n<\/blockquote>\n\n\n\n

2. Improves demand forecasting<\/h3>\n\n\n\n

Demand forecasting<\/a> helps make better-informed supply decisions that estimate the total sales and revenue for a future period of time.<\/p>\n\n\n\n

It not only helps you meet customer demand, but it also helps you make better financial decisions that impact profit margins, cash flow, inventory allocation<\/a>, warehousing, staffing, and overall logistics spend.<\/p>\n\n\n\n

3. Better storage system<\/h3>\n\n\n\n

Storing your inventory takes not only well-thought out planning but constant improvement.<\/span><\/p>\n\n\n\n

If you have clear-cut, goal-driven plans for your inventory, you will be able to choose an inventory storage system<\/a> that works best for your team, depending on how much space you have, the size of your products, the number of SKUs you have, the total units you carry, and more.<\/span><\/p>\n\n\n\n

You can also plan the layout and design of the warehouse space, so that warehousing<\/a> becomes a lot more efficient. Known as warehouse slotting<\/a>, taking the time to organise your warehouse can help maximise your space and speed up fulfilment without compromising order accuracy<\/a>. <\/span><\/p>\n\n\n\n

If you think your warehouse is full, slotting can help identify ways to increase storage complicity.<\/p>\n\n\n\n

On the other hand, you can set your warehouse picking<\/a> team up for success by storing products in a way that make the most sense to them, such as by type, size, or weight, or by productivity (i.e., storing your best-sellers or most common order combinations together). This enables your team to focus on efficiency rather than spending too much time locating the right item.<\/p>\n\n\n\n

What are the challenges of inventory planning?<\/h2>\n\n\n\n

While the benefits of strong inventory planning are undeniable, retailers also tend to face quite a few roadblocks when it comes to adopting planning best practices for their business. <\/span><\/p>\n\n\n\n

Here are some of the challenges that many online brands face when it comes to inventory control<\/a>.<\/span><\/p>\n\n\n\n

1. Unreliable data<\/h3>\n\n\n\n

For a smooth and lean supply chain<\/a> process, you need access to real-time data. But many times, the data is not tracked diligently, especially if it\u2019s tracked manually.<\/span><\/p>\n\n\n\n

Even when kept tabs on, it is dispersed across many disparate systems. This makes it difficult for retailers to piece all the data together to gain a complete picture of the inventory. <\/span><\/p>\n\n\n\n

In the absence of a cohesive view of historic and\/or current <\/span>inventory levels<\/span><\/a> and any other important sales information, you will find yourself floundering in the dark when it comes to making inventory-led decisions. This is why implementing a centralised, real-time <\/span>inventory tracking<\/span><\/a> system is non-negotiable. <\/span><\/p>\n\n\n\n

Implementing a way to track inventory in real time ensures you have accurate data, even as you expand into new sales channels and grow your distribution network. There are several inventory apps<\/a> to choose from that make it easy for online brands to better track inventory.<\/p>\n\n\n\n

But instead of investing in your own inventory tracking software, you can save time and money by partnering with third-party logistics<\/span><\/a> (3PL) provider like ShipBob.<\/p>\n\n\n\n

ShipBob not only stores your inventory in the domestic and\/or international fulfilment<\/a> locations of your choice, but you also get access to inventory data from a single dashboard.<\/p>\n\n\n\n

That way, you can save time and effort on updating several spreadsheets and reduce human error (and even take time-consuming inventory tasks off your team\u2019s plate completely).<\/p>\n\n\n\n

\n

\u201cI used to have to pull inventory numbers from three places everyday and move all the disparate data into a spreadsheet. ShipBob has an analytics tab in their dashboard with all of this information, which is great for end-of-month reconciliations. It\u2019s really nice to not have to operate three 3PLs.\u201d<\/em><\/span><\/p>\n\n\n\n

Wes Brown, Head of Operations at Black Claw LLC<\/a><\/span><\/p>\n<\/blockquote>\n\n\n\n

2. Lack of automation<\/h3>\n\n\n\n

Customers have high expectations on how quickly orders are fulfilled and shipped. But being in the weeds of planning and managing inventory can impact supply chain efficiency<\/a>.<\/span><\/p>\n\n\n\n

It\u2019s not uncommon for online brands to implement inventory automation<\/span><\/a> to automate inventory-related tasks that are often time-consuming and prone to human error, such as <\/span>mispicks and inventory shrinkage,<\/a> when inventory is managed manually. <\/span><\/p>\n\n\n\n

No wonder more and more modern retailers are using automated software to enable an efficient <\/span>inventory management<\/span><\/a> process. Automation can remove time-consuming manual work while improving <\/span>inventory accuracy<\/span><\/a>.  <\/span><\/p>\n\n\n\n

3. Lack of internal training<\/h3>\n\n\n\n

Without proper staff training, your warehouse processes will likely fail or slow down. <\/span><\/p>\n\n\n\n

For your employees to really add value to inventory planning, you need to empower them with knowledge of the latest processes, data and analytics, distribution metrics, and technologies involved in <\/span>supply chain management<\/span><\/a>. <\/span><\/p>\n\n\n\n

But investing in training and implementing technology can be costly, not to mention time-consuming. Though many online brands have team members that look over logistics planning<\/a>, it\u2019s not uncommon for online brands at all different stages of growth to partner with a 3PL that provides the technology, data, and expertise needed to plan and manage inventory effectively.   <\/span><\/p>\n\n\n\n

Inventory planning methods to implement<\/h2>\n\n\n\n

There is no one-size-fits-all method for inventory planning, but there are several methods to choose from, which all have their advantages and disadvantages.<\/span><\/p>\n\n\n\n

Here are the top inventory planning methods used by fast-growing online brands. <\/span><\/p>\n\n\n\n

1. Economic order quantity (EOQ) model<\/h3>\n\n\n\n

If you believe in running a lean warehouse<\/a>, the economic order quantity<\/a> (EOQ) model works well.<\/span><\/p>\n\n\n\n

It involves a calculation that finds the optimal order quantity to minimise logistics costs<\/a> and optimise storage space.<\/p>\n\n\n\n

To calculate EOQ <\/span>economic order quantity<\/span><\/a> (EOQ) formula, you will need access to three variables: holding costs<\/a> (i.e., total cost of holding inventory), annual demand, and order cost. From there, you can use the following calculation:<\/span><\/p>\n\n\n\n

\n

EOQ = square root of: [2(order costs)(demand rate)] \/ holding costs<\/p>\n<\/blockquote>\n\n\n\n

2. Minimum order quantity (MOQ) model<\/h3>\n\n\n\n

Minimum order quantity (MOQ)<\/a> represents the least number of units that a buyer needs to purchase in every order.<\/span><\/p>\n\n\n\n

Many suppliers<\/a> set an MOQ to make inventory orders worthwhile to fulfil. Cheaper inventory items tend to have higher MOQ, and vice versa. If your business needs less stock than the supplier\u2019s MOQ, then you might need to look for an alternate supplier. <\/span><\/p>\n\n\n\n

Though this method is typically used by manufactures and suppliers (including some packaging vendors), online brands have reasons to use it as well. For instance, online brand might have MOQ if they fulfil B2B orders. Having an MOQ in place for B2B customer can incentive a higher order spend. <\/span><\/p>\n\n\n\n

It can also be used to determine a minimum spend threshold for all customers that will offset the costs of offering free shipping<\/a>. That way, customers are incentivized to spend more. <\/span><\/p>\n\n\n\n

3. FIFO & LIFO model<\/h3>\n\n\n\n

The first in, first out (FIFO) model is a type of inventory valuation<\/a> method that has one simple rule: goods from the batch that came into the warehouse first are what will be sold first. This framework is especially useful when you are selling perishable inventory items such as products with expiration dates.<\/span><\/p>\n\n\n\n

Even if your goods are shelf-stable, FIFO is still a useful model. It\u2019s important to change out inventory so you don\u2019t end up carrying inventory that becomes unsellable or obsolete (known as deadstock<\/a>) like if you change your logo or packaging.<\/p>\n\n\n\n

Additionally, it delivers a higher net income in an inflationary market and a better measure of <\/span>ending inventory<\/span><\/a> value. <\/span><\/p>\n\n\n\n

On the other hand, with the last in, last out (LIFO) model, goods from the batch that comes in last are shipped out first. When prices of goods are rising, this accounting method offers some tax advantages.<\/span><\/p>\n\n\n\n

4. Reorder point formula<\/h3>\n\n\n\n

Are you always struggling to figure out when, how frequently, and which inventory to reorder? SKU management<\/a> is challenging, especially if your product catalogue <\/a> is on the large size.<\/span><\/p>\n\n\n\n

To ensure you restock inventory on time to meet demand, the reorder point formula<\/a> is a great tool. <\/span>Reorder points ensure that you don\u2019t fall behind on your next batch of inventory.<\/p>\n\n\n\n

With an accurate reorder point for each SKU<\/a>, you\u2019ll always have enough stock on hand to satisfy customer demand. Since every SKU will perform differently, it can help you decide how frequently to restock certain items based on past sales trends.<\/p>\n\n\n\n

To calculate reorder points for each SKU, you will need to know:<\/p>\n\n\n\n