Why is Inventory Buffer Important?
An inventory buffer is crucial, as this buffer allows mitigation of such risks where stockouts, lost sales, and many irate customers arise. By using a buffer, businesses can still meet customer requirements should the supply chain encounter an upheaval, such as a shipping or manufacturing issue that halts delivery.
This buffer becomes especially important during peak seasons or promotional periods when demand is harder to predict. In such times, having an inventory buffer means that businesses can meet fluctuating demand without experiencing stockouts and gives some level of security to the business and customer alike. Besides, businesses involved in marketplace fulfilment or warehouse management can plan for spikes in demand across different sales channels for smoother order fulfilment.
What Factors Affect Inventory Buffer?
A number of factors determine the size of an inventory buffer. One of the major factors is predictability in demand. Many products that have unpredictable demand have larger buffers.
Supply chain reliability is another factor. Companies with dependable suppliers might keep smaller buffers. However, a history of delays or disruptions suggests a need for more reserves.
How to Set an Effective Inventory Buffer?
Setting an effective inventory buffer requires data analysis and forecasting. A review of past sales trends allows a business to predict the peak period and set an appropriate buffer level. For example, a business might analyse the previous year’s sales during holidays or special promotions to determine how much extra stock is needed to meet demand without overstocking.
Other ways of improving inventory buffer accuracy involve the utilisation of some forecasting tools. These tools make accurate predictions for future demand, taking several variables into consideration: historical sales, market trends, supplier lead times, and external variables. In real-time, a business can constantly update its buffer levels to reduce stockouts and prevent too much inventory from building up.
