In this article, we explain exactly what available inventory means and why it’s crucial to monitor them. We also share our 5-step framework to help you manage them more effectively, with real-world examples. Read on to learn more.
What Does Available Inventory Mean?
Available inventory refers to the quantity of items on-hand that are ready for sale or use. It is the stock that businesses can immediately allocate to fulfill customer orders.
Example: Let's say Apple Inc. has 10,000 units of iPhone 13 in stock, but 1,500 are reserved for pre-orders. Thus, they have an available inventory of 8,500 units.
Why You Should Monitor Your Available Inventory
There are several reasons why accurate tracking of available inventory is pivotal to your business's operations and success. We list some of these below:
Financial Management: It helps in financial planning and reduces holding costs associated with excess stock.
Customer Satisfaction: Ensures timely fulfillment of orders, enhancing customer trust.
Supply Chain Optimization: Maintains a seamless flow of goods, avoiding bottlenecks.
Strategic Decision-making: Provides real-time data to make informed decisions about sales, promotions, and procurement.
Reduced Stockouts: Prevents loss of sales due to unavailability of products.
Efficient Production: For manufacturers, ensures that production runs smoothly without interruptions.
5 Steps to Manage Available Inventory More Effectively
Here’s our 5-step framework to help you manage your available inventory more effectively. Simply follow the steps below:
Step 1: Define and Distinguish Available Inventory
Understand the difference between total on-hand inventory and items that are reserved, in-transit, or otherwise allocated. Only count items genuinely available for new orders.
Example: Sony has 10,000 PlayStation 5 consoles in their warehouse, but 2,000 are already allocated for a major retailer's order. This means Sony's available inventory for other customers is 8,000 units.
2. Implement Real-time Inventory Updates
Utilize a system that reflects stock changes immediately after every transaction, ensuring accuracy in tracking.
Example: At Starbucks, when a barista sells a bag of their Sumatra roast, their system immediately updates, reducing the available inventory from 100 bags to 99 in that particular store.
3. Set Strategic Reorder Points
Determine when to reorder items based on sales velocity and lead times, optimizing stock levels without overstocking or running out.
Example: Dell sells an average of 500 units of a particular laptop model each week. Given a two-week lead time for manufacturing, they set a reorder point at 1,000 units.
4. Adjust for Demand Fluctuations
Monitor sales trends, seasonality, and external factors. Adjust inventory levels and reorder points accordingly to anticipate changes in demand.
Example: Adidas anticipates a 20% increase in sneaker sales during the back-to-school season. If they typically stock 5,000 pairs, they'd increase that number to 6,000 pairs in preparation.
5. Strengthen Supplier Communication
Establish a clear channel with suppliers for quicker restocking, addressing discrepancies, and sharing demand forecasts.
Example: Sephora forecasts a surge in demand for a new Fenty Beauty lipstick. They communicate with their supplier to ensure a restock lead time of just 3 days, down from the usual 7 days, ensuring 5,000 units are always available.
Urban Electronics, a mid-sized electronics retailer, was gearing up for the holiday season and wanted to ensure they managed their available inventory effectively.
They decided to follow our 5-step process:
Step 1: Define and Distinguish Available Inventory
Urban Electronics counts a stock of 15,000 units of a new smartwatch but realizes 3,000 are already pre-ordered online. This brings their available inventory down to 12,000 units for in-store purchases.
Step 2: Implement Real-time Inventory Updates
After partnering with TechFlow, a leading POS software, every sale from their 10 physical stores instantly reflects in their system. When 150 units are sold on Black Friday morning across all outlets, the system immediately adjusts, displaying an available inventory of 11,850 units.
Step 3: Set Strategic Reorder Points
Historical data shows Urban Electronics sells an average of 500 units of the smartwatch weekly. Given their supplier's one-week lead time, they decide to set a reorder point at 1,500 units to ensure they always meet customer demand.
Step 4: Adjust for Demand Fluctuations
Urban Electronics is aware of a major marketing campaign planned for December. Expecting a 30% spike in sales due to the campaign, they adjust their available inventory from the typical 12,000 units to 15,600 units for the month.
Step 5: Strengthen Supplier Communication
To cater to the increased demand, they maintain transparent communication with Smart Tech, their primary smartwatch supplier. By sharing their sales forecast and the anticipated effects of their marketing campaign, they secure a commitment from Smart Tech for expedited deliveries during December, ensuring they never run below the threshold of 1,500 units.
We hope you now have a better understanding of what available inventory means and how to manage it more effectively.