Planning for changes in demand for product is a situation everyone deals with. It’s not just a corporate issue either! At work, at home, in almost every space, there is a need for products, and those needs (demand) change due to internal and external influences.
For example, a company that manufactures Widget A needs to bring in raw materials for ongoing production but they also need to manage that inventory so as not to end up with an excess when demand falls. Why? Because storage costs money.
Consider the growth of the self-storage industry for personal use. In 1995, one in 20 households used these kinds of facilities. Today, we are at one in 10 households. There are some 52,000 storage facilities in the US. Annual revenues are topping out at $38B with the average renter spending $91.14 per month to store their stuff.
Let’s keep in mind that a storage facility is used to store things that you don’t use every day, and that you don’t need immediate access to on a regular basis. So the growth in storage needs points to the fact that we tend to acquire ‘stuff’, despite a complete lack of demand. On a personal level, it seems many of us are lacking good demand planning and inventory management skills!
Let’s look at a few categories of things that go into storage
Seasonal decorations: More and more households decorate for every holiday. I’m not just talking about a wreath on the door either! It has gotten more extensive and more over the top, which means inventory and storage needs for all the lights, inflatable pumpkins, crèches, menorahs, and so on.
Clothes: When I was growing up, there were six of us living in a four bedroom house. We had enough closet space for everyone’s everything. But times have changed! My parents are still living in that house, on their own, and every closet is full of just their things. The same is true for my in-laws and just about everyone else I have spoken to on this topic. My kids have gotten married and I can see the same thing happening in their homes. Why all the excess inventory? I am sure if any of us were to track what we wear, it would follow the Pareto Principle: we wear 20% of the clothes that we inventory 80% of the time.
Consumable Household Goods: Who can go into a warehouse store and only come out with three items? Few of us! We can now buy gargantuan amounts of most foods and household goods and get a ‘great deal’ doing it! Do you need 100 AAA batteries though? How about a flat of 35 boxes of tissues or 75 rolls of toilet paper? Sure, it might be a good deal but if you’re paying to store it because your house isn’t big enough, you aren’t planning your inventory with a thought to demand in a household of four people, for example.
Good habits in demand planning and inventory management begin at home
Focusing in on the category of household goods, if we are given incentives to buy in these large quantities, then we must be aware that our inventory is going up and will turn less often. But is the demand really there? With four people living in the house, yes, you will eventually go through 75 rolls of toilet paper, but where are you going to store them? How will you ensure that the two ply that you like is separated from the three ply that your spouse likes? Most households do not have a good system or any system at all for managing inventory and demand planning. In fact, most of the time we never really know how much of any single item we have and where it might be stored.
Take an inventory in your own home. How many batteries do you have? How many locations? How much toothpaste, bleach, boxes of cereal, etc.? Make sure you look in every pantry and closet. All but the very organized will be astonished at the levels of inventory and poor stock keeping practices they have maintained for years.
Here’s the thing though: inventory levels should not be astonishing. It comes down to the fact that we use no demand planning and the most rudimentary stock keeping methods. Basically, it’s a visual assessment now and again before running out to the big box warehouse store. Also, there is no quarterly reporting of household inventory. Any business operating with these principles would be a total mess too!
Interestingly, if you ask most people, they’ll tell you that they tend to ignore inventory management for lower priced items, but they can recite, down to the last dollar, how many bottles of wine they have in their cellar. Why? Because these higher priced, high quality items require a better form of demand planning and inventory management to ensure they turn over and are always in stock, but not to excess.
So take these principles and apply them to any enterprise. Inventory costs money: to buy, to store, to track. Using smart forecasting and demand planning to ensure that you don’t end up with the enterprise equivalent of 75 rolls of toilet paper lying around is essential to doing business in the 21st century.