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Inventory Positioning - Everything You Need to Know in 2024

2 minutes

In this article, we explain what inventory positioning is and why it’s important. We will also walk you through our 4 step process on how to position your inventory. Read on to learn more.

inventory positioning

What Is Inventory Positioning? 

Inventory positioning refers to the strategic placement and management of stocked goods within a supply chain to optimize service levels and costs. 

Example: ElectroTech Inc. might store 1,000 units of a popular gadget in a central warehouse and distribute 100 units to ten regional stores based on demand forecasts.

inventory position

Why Does Inventory Position Matter?

Proper inventory positioning is key to making operations run smoothly. Here are some key reasons why it matters: 

Cost Efficiency: Reducing the costs of holding, transferring, and managing inventory across multiple locations.

Service Level Optimization: Ensuring products are available where and when customers want them, leading to increased customer satisfaction.

Reduced Stockouts: By positioning inventory effectively, businesses can minimize the risk of running out of stock.

Optimized Transportation: By storing products closer to demand points, transportation costs and times can be minimized.

Supply Chain Resilience: Enhancing the ability of the supply chain to respond to disruptions by having inventory spread across multiple locations.

Increased Sales: Quick product availability can lead to more sales and fewer lost opportunities.

How to Position Your Inventory Effectively in 4 Steps

Inventory positioning is a strategic process that requires careful planning and execution. Here’s how we do it: 

Step 1: Demand Forecasting

Use past sales records and data analytics to make informed predictions about how many units of a product will be sold in the future. 

Example: Using past sales and data analytics, AutoDrive Corp predicts they'll sell 300 car accessories in the West and 450 in the East next month.

Step 2: Identify Optimal Stocking Points

Examine the forecasted demand, transportation costs, and storage capacities to decide the most strategic locations to keep inventory. 

Example: GreenGrocers Ltd. opts to store more organic apples in their eastern depot, forecasting 3,000 kg sales in the East versus 2,500 kg in the West.

Step 3: Safety Stock Calculation

Assess potential risks like supply chain disruptions, unexpected demand surges, or manufacturing delays and decide on a specific number of units to keep on hand as a precaution.

Example: Considering potential supply risks, FashionTrendz Boutique maintains a buffer of 100 extra dress units in both their Downtown and Uptown outlets.

Step 4: Regular Review and Balancing

Regularly compare actual sales with predicted sales. If there's a big difference, move inventory between locations to better match the actual demand.

Example: BookBarn Stores checks actual book sales against forecasts monthly. Noticing a trend, they shift 200 copies from their Eastern branch to the Western one to address demand.

inventory positions

Case Study

Consider this hypothetical example: Zenith Fashion Corp. is a clothing company that's facing frequent stockouts in its East Coast stores while having excess inventory in the West. 

They decided to reposition their inventory using our 4-step process:

Step 1: Demand Forecasting

By analyzing past sales and market trends, Zenith estimates that their East Coast stores will see sales of 10,000 units in the upcoming month, in contrast to the West Coast's projected 7,000 units.

Step 2: Identifying Optimal Stocking Points

After reviewing their storage and distribution capacities, Zenith concludes that redistributing 1,500 units from their West Coast storage to the busier East Coast hub will better meet anticipated demand.

Step 3: Safety Stock Calculation

To account for unforeseen demand spikes or potential supply delays, Zenith proactively decides to maintain an additional buffer of 300 units in both the East and West Coast warehouses.

Step 4: Regular Reviewing and Rebalancing

Zenith stays vigilant with its sales tracking, and after observing a consistent sales surge on the East Coast over a fortnight, they further adjust their inventory by moving an extra 500 units from the West Coast to better serve the Eastern demand.

We hope this article has given you a better understanding of the concept of inventory positions and how to execute inventory positioning effectively. 

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