Planning Pitfalls: Avoiding the Costly Mistakes

Inventory planners play a crucial role in a company's financial health, as inventory is often one of its most significant assets. A single misstep in planning can have severe financial consequences, sometimes requiring drastic measures to mitigate the damage.

To avoid these pitfalls, planners should be mindful of the following key areas:

1. Impact of Product Life Cycle on Demand Planning Many companies, despite having forecasting processes, overlook fundamental planning concepts, such as the product life cycle. Industries like home decor, furniture, and fashion are particularly susceptible to short-lived trends that can significantly impact product lifespans. To accurately plan inventory, it's essential to collaborate with the product development team to categorize products based on their expected lifecycle.

2. Flawed Lead Time Calculations Accurate lead time calculations are critical to prevent stockouts. However, inconsistent lead times from suppliers, coupled with partial shipments, can make it challenging to establish reliable lead time estimates.

Consider the following examples:

• A CNC machine manufacturer relied on a simple average of the last three shipments to estimate lead time. This approach left them vulnerable to stockouts when demand surged unexpectedly.

• A seat and fender manufacturer failed to account for pre-processing, post-processing, and administrative delays, leading to inaccurate lead time calculations and stockouts.

3. Not Validating Data Incorrect or incomplete data can lead to significant planning errors. For example:

• A new planner mistakenly used on-hand inventory instead of available-to-promise quantity, resulting in stockouts.

• A procurement specialist omitted an estimated time of arrival (ETA) from a purchase order, causing unnecessary panic and potential overstocking.

It's important to note that every industry has unique planning nuances. While these common pitfalls can serve as general guidelines, planners must adapt their strategies to the specific characteristics of their business.