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Planning for changes in demand for product is a situation everyone deals with. It’s not just a corporate issue either! At work, at home, in almost every space, there is a need for products, and those needs (demand) change due to internal and external influences. For example, a company that manufactures Widget A needs to bring in raw materials for ongoing production but they also need to manage that inventory so as not to end up with an excess when demand falls. Why? Because storage costs money.
Consider the growth of the self-storage industry for personal use. In 1995, one in 20 households used these kinds of facilities. Today, we are at one in 10 households. There are some 52,000 storage facilities in the US. Annual revenues are topping out at $38B with the average renter spending $91.14 per month to store their stuff.
Let’s keep in mind that a storage facility is used to store things that you don’t use every day, and that you don’t need immediate access to on a regular basis. So the growth in storage needs points to the fact that we tend to acquire ‘stuff’, despite a complete lack of demand. On a personal level, it seems many of us are lacking good demand planning and inventory management skills!
Focusing in on the category of household goods, if we are given incentives to buy in these large quantities, then we must be aware that our inventory is going up and will turn less often. But is the demand really there? With four people living in the house, yes, you will eventually go through 75 rolls of toilet paper, but where are you going to store them? How will you ensure that the two ply that you like is separated from the three ply that your spouse likes? Most households do not have a good system or any system at all for managing inventory and demand planning. In fact, most of the time we never really know how much of any single item we have and where it might be stored.
Take an inventory in your own home. How many batteries do you have? How many locations? How much toothpaste, bleach, boxes of cereal, etc.? Make sure you look in every pantry and closet. All but the very organized will be astonished at the levels of inventory and poor stock keeping practices they have maintained for years.
Here’s the thing though: inventory levels should not be astonishing. It comes down to the fact that we use no demand planning and the most rudimentary stock keeping methods. Basically, it’s a visual assessment now and again before running out to the big box warehouse store. Also, there is no quarterly reporting of household inventory.
Any business operating with these principles would be a total mess too! Interestingly, if you ask most people, they’ll tell you that they tend to ignore inventory management for lower priced items, but they can recite, down to the last dollar, how many bottles of wine they have in their cellar.
Because these higher priced, high quality items require a better form of demand planning and inventory management to ensure they turn over and are always in stock, but not to excess. So take these principles and apply them to any enterprise. Inventory costs money: to buy, to store, to track.
Using smart forecasting and demand planning to ensure that you don’t end up with the enterprise equivalent of 75 rolls of toilet paper lying around is essential to doing business in the 21st century.