Demand Planning & Tradeoffs

For years I searched for the perfect solution for demand planning. I wanted a software that I could plug into my stores and then it would tell me what inventory I needed to order.

I’ve come to the realization that there is no perfect solution for demand planning. Demand planning is all about tradeoffs. We will always be wrong, our focus should be minimizing how wrong we are and identifying which way we want our errors to skew, too much or too little inventory. The answer to that question depends on a variety of factors. This is a non-exhaustive list but gives an idea of the factors we are looking at.

• Gross Margins - typically a higher gross margin will skew us towards wanting to have more inventory vs. less

• Revenue Growth Goals - if we have high growth goals then again we will skew towards having too much inventory

• Macroeconomic Situation - if economic conditions are uncertain we may want to reduce risk by holding less inventory

• Personal Risk Tolerance - more inventory typically means more risk, is the owner(s) of a company more risk tolerant?

• Access to Capital - more access to capital may mean we can increase inventory on hand and not run into cash constraints

  • Do we want to take on debt? Do we want to take on investment?

• And more!!!

How much inventory can the business support having on hand before the bank account goes to $0? Does it help us sleep at night knowing we may be missing out on sales but are financially secure with money in the bank? These are the questions that need to be answered before committing to a demand planning strategy. As with many things in life, this is a question of tradeoffs.

At SCG we will help you create a demand planning strategy then we will execute on that strategy. We will conduct regular check-ins through Sales & Ops meetings to ensure the strategy is evolving as the company grows and goals change.