Necessary data for inventory management: what you need for effective planning

8. Necessary data for inventory management

8. Necessary data for inventory management 

As mentioned in the automated approach for inventory policies, these are the types of information you might have available:  

1. Information typically available in companies 

  • Historical demand data: Provides the basis for calculating demand variability, allowing companies to establish averages and standard deviations in demand. 
  • Determined service levels: These directly influence the safety stock calculation. 

  • Lead time: Average lead time data for each supplier, critical to determining how long stock needs to last until the next (likely) replenishment. 

  • Demand variability: Fluctuations in demand over time, often calculated as standard deviation, impact safety stock needs. High variability requires higher safety stock to maintain service levels. 

  • Order frequency: Frequency of ordering or production cycles affects safety stock needs. More frequent orders allow for lower safety stock. 


  • Order quantities or batch sizes: Minimum order quantities (MOQs) or fixed batch sizes directly influence the inventory strategy, potentially requiring higher safety stock if MOQs are large. 

2. Information sometimes available 

  • Supplier/lead time reliability: Measures how consistently suppliers meet lead times. If reliability data shows frequent delays, companies might hold more safety stock. However, not all companies track supplier performance in detail. 
  • https://horizonsolutions.ai/demand-planning-software-for-manufacturing-organizationshttps://horizonsolutions.ai/demand-planning-software-for-manufacturing-organizations: The accuracy of demand forecasts influences required safety stock. If forecasts are often inaccurate, higher safety stock may be necessary. Some companies monitor forecast accuracy closely, while others don’t. 

  • Inventory carrying or warehousing costs: These costs can indirectly impact safety stock levels if the company aims to optimize carrying costs. Many companies track total warehousing costs but may not link them directly to individual items. 

  • Stockout costs: The financial impact of stockouts (e.g., lost sales, production downtime). Companies that can quantify this cost can make better decisions about safety stock levels, but many don’t have precise figures for stockout costs. 

  • 3. Information often unavailable (or too difficult to get) 

  • Customer demand sensitivity: Measures the impact of stockouts on customer satisfaction. While qualitative insights might be available, many companies lack quantifiable data on how stockouts affect customer loyalty or satisfaction. 
  • Production lead time variability (for manufacturers): Fluctuations in internal production lead times may require extra safety stock for components. However, companies often struggle to quantify this variability in an exact manner. 

  • Cost of overstock vs. understock: Balancing the cost of excess inventory against stockout costs can fine-tune safety stock levels but requires detailed financial analysis that isn’t always readily available. 

  • Supplier capacity constraints: If a supplier has capacity issues, there might be risks of extended lead times during peak demand. Most companies don’t have visibility into supplier capacity limitations.