What is an Inventory Planning System?
An inventory planning system is the process of determining the optimal quantity of inventory along with the timing of the product delivery. The main models of a traditional inventory planning system are economic order quantity, continuous ordering and periodic ordering. A business’ inventory planning system analyzes demand to determine the timing and quantity of ordering inventory.
Define each model of a traditional inventory planning system, as well as some more modern models.
Inventory planning system models:
- Economic order quantity – a formula for ordering inventory that determines the ideal order quantity and company should purchase given a set cost of production, demand rate and other variables.
- Continuous ordering – an inventory review method that keeps a constant track of inventory levels and automatically reorders stock once levels of a particular product drop below a designated limit.
- Periodic ordering – an inventory review method that requires an inventory count to be performed routinely and orders products based on those stock levels.
- Enterprise resource planning (ERP) – a solution that combines inventory planning (keeping stock counts, maintaining proper product inventory levels) with overall supply chain management
- Barcoding – an inventory management tool that assigns a barcode to each product that can be scanned to track inventory levels and provide other pertinent information.
Why is an inventory planning system important for business?
An inventory planning system allows business leaders to make informed decisions about when to order inventory to minimize costs. An efficient system uses a demand forecasting formula to calculate the optimal quantity of inventory to maintain.