How can you balance warehouse capacity and demand planning to avoid overstocking?

Balancing warehouse capacity and demand planning is an ongoing process. It requires attention to detail, data analysis, and collaboration across departments. Data requires to be updated and reviewed for order delivery, this step will help with Customer Satisfaction. Continuous improvement, regularly review your inventory management processes and adjust them based on performance metrics.

The most important point to avoid overstocking or overcapacity is a stable Sales and Operations Planning process (S&OP). After consolidating the market requirements, the feasibility within the supply chain and production is evaluated. Only if this is given, the forecasts should be transferred to the ERP system.

Demand planning needs to be aligned to sales demand, not warehouse capacity. Warehouse capacity should reflect sales demand coupled with buffer stocks based on the variability of demand!

Safety stock is an extra “buffer” of inventory in the event demand increases unexpectedly and/or supply chain issues prevents you from replenishing one ore more items of inventory. There is a need for this cushion, as “stockouts” result in nearly a trillion dollars in lost sales worldwide every year. Service levels must remain high, as any real drop-off can negatively affect your company’s reputation. BUT too much safety stock increases carrying costs and certain types of products (high tech, perishables, etc…) could depreciate in value while gathering dust in storage. Safety Stock = (max number sold per day X maximum lead time in days) – (average number sold per day X average lead time in days)