Chapter 3: Contingency Planning
Table of Contents
Having a plan B for your worst-case scenario makes it easier for you to react quickly to problems as they arise. With a well-formed contingency plan in place, your business can quickly resolve inventory challenges such as overstocking, understocking, overselling and lack of warehouse space.
Potential Issues in Inventory Management
In the world of e-commerce and modern inventory management, things move fast and obstacles can arise at a moment’s notice. In 2018, 13.2% of supply chain leaders said inventory management was their greatest challenge, and 19.7% cited fluctuating consumer demand. Coordinating across multiple sales channels is the biggest challenge for another 11.8% of supply chain executives.
Planning for these issues and more is critical. Safety stock is even sometimes called contingency stock since it is one of the most important inventory management strategies for preventing understocking. Some of the hurdles and challenges in your inventory management might include:
- Your sales unexpectedly spike, and you run out of stock.
- When selling on multiple sales channels, you accidentally oversell by promising the same merchandise to multiple customers.
- You miscount or miscalculate your inventory and end up with more or less stock than you need.
- You have slow- and non-moving inventory taking up valuable storage space.
- Your manufacturer runs out of inventory, or another issue significantly delays a replenishment order.
- Your manufacturer discontinues your product.
- You run out of warehouse space or need additional space during your peak sales season that would go unused during the rest of the year.
If you’re an inventory manager for your business, consider the likelihood of these scenarios and what you can do when they occur. Developing smarter inventory handling methods and management techniques can help you plan for and sometimes even prevent these concerns.
Three Steps to Contingency Planning in Inventory Management
Contingency planning, often called business continuity planning, is the process of developing and stress-testing an action plan for emergencies and problem scenarios that may affect your company. Contingency planning can cover emergencies and worst-case scenarios that affect every aspect of your business, such as power outages, floods or workplace violence.
In inventory management, these plans help you quickly recover from issues such as supply or warehouse space shortages. Inventory contingency planning requires three steps — assess, plan and communicate.
Step 1: Assess
First, consider what is most likely to happen in your warehouse. Is a crucial supplier located in a region with frequent natural disasters? Are any raw materials used in your products subject to supply shortages? Is it difficult to predict demand?
An excellent first step is to map out your company’s essential processes, especially those related to or relying on inventory management. Then consider some worst-case scenarios, how they would affect your business and their likelihood of occurring.
Step 2: Plan
Next, develop a plan for each of the scenarios that might occur. Your plan should:
- Identify triggers that put the plan into action.
- Assign roles and responsibilities, and explain how employees will be affected.
- Outline a timeline for mitigating the problem.
- Specify technology that will assist you in resolving or preventing inventory concerns.
- Provide a list of alternative vendors to help you stay in stock during a supplier delay.
- List options for temporary warehousing space to alleviate space constraints.
- Consider options for unloading excess product in secondary markets to mitigate overstocks.
During this phase, you might also identify some solutions for improving inventory control that can reduce the risk or severity of a problem. For example, using real-time inventory tracking software can prevent issues such as miscounting inventory or running out of stock while helping you better predict demand.
Step 3: Communicate
Once your plan is in place, make it clear to everyone involved. Your team should know when and why a particular plan would be called into action and what their responsibilities will be. Consider who needs what information, including your warehouse’s leadership, your receiving and loading dock crew and your inventory control team.
How Finale Inventory Helps You Plan Ahead
Finale Inventory is robust software with many tools to help you predict and prevent inventory challenges. It includes a powerful analytics dashboard so you can analyze your sales velocity, making upward and downward trends in demand more visible. With reorder forecasting and low stock alerts, you can replenish your stock before you run out. For more information about how to improve inventory control with Finale Inventory and how to tackle your greatest inventory challenges, contact us for a live demo.