Inventory planning: from demand history to replenishment decisions.
Inventory planning answers three practical questions: how much demand to expect, when inventory becomes risky, and how much to order.
1. Establish a demand rate
Start with historical units sold over a known period. Convert this to an average daily demand rate and inspect whether recent demand differs materially from earlier history.
2. Measure lead-time exposure
Expected lead-time demand is average daily demand multiplied by supplier lead time. Longer or more volatile lead times increase the inventory buffer required for a given service target.
3. Add safety stock
Safety stock protects against uncertainty. It should reflect demand variability, lead time and the desired service level rather than an arbitrary fixed percentage.
4. Calculate the reorder point
The reorder point is expected demand during lead time plus safety stock. When inventory position approaches this level, replenishment should be reviewed.
5. Prioritize exceptions
Not every SKU deserves equal attention. Rank shortages by revenue exposure, days of cover, lead time and ABC importance so the team works on the highest-impact exceptions first.