How Can You Avoid Overstocking or Understocking My Products?

Managing inventory is one of the biggest challenges for makers and small business owners. Overstocking ties up cash and space, while understocking can lead to missed sales and disappointed customers. But with careful planning, you can find the sweet spot that ensures you meet demand without overspending on production or missing out on opportunities.

So, how can you avoid overstocking or understocking your products?

3 Perspectives on Managing Inventory:

1. Track Sales Data and Anticipate Demand Analyze past sales data to identify trends. Are there specific times when demand spikes or dips? By understanding seasonal patterns and customer behaviour, you can plan for the future. If you’re launching, produce smaller batches first and adjust as you gather more insights.
2. Leverage Pre-orders and Waitlists Pre-orders are a great way to gauge demand before committing to large production runs. By offering products for pre-sale, you get a sense of how much interest there is before you invest in stock. Similarly, using waitlists allows you to track potential demand for items temporarily out of stock.
3. Maintain a Balanced Inventory Mix Focus on keeping a steady supply of your best-selling products while experimenting with new or limited-edition items in smaller quantities. This way, you can meet customer demand without risking too much capital on untested products. Diversifying your inventory reduces the chance of overcommitting to a single item.

2 Concepts to Think About:

1. Just-in-Time (JIT) Inventory This approach means producing or ordering stock just as it’s needed, reducing the cost of holding too much inventory. While this keeps overhead low, it requires solid supplier relationships and accurate demand forecasting to avoid delays.
2. Buffer Stock for Seasonal Peaks Having a small buffer stock of your core products ensures you don’t run out during peak seasons or unexpected surges in demand. However, this buffer should be carefully calculated to avoid excess.

1 Real-Life Example

1. Everlane: Lean Inventory Model Everlane, a direct-to-consumer fashion brand, operates on a lean inventory model. They keep minimal stock, producing items in small batches based on customer demand. By relying on pre-orders and releasing limited quantities, they avoid overproduction while maintaining exclusivity. This strategy ensures they don’t tie up resources in excess inventory and can quickly pivot if demand shifts.

Exercise for the Week

Audit and Update Your Inventory Strategy

Objective: Optimize your inventory management to avoid overstock or understock issues.

1. Analyze Sales Data: Look at your past sales records to identify patterns and adjust your production accordingly.
2. Consider Pre-orders or Waitlists: Implement a pre-order system or waitlist for your most popular products.
3. Revisit Your Inventory Mix: Identify which products are your best-sellers and maintain an appropriate stock level while keeping experiments small.
4. Evaluate Your Supply Chain: Make sure your suppliers are reliable, and that you can scale production when necessary without risking long delays.

Expected Outcome: A more balanced inventory system that reduces the risk of overstocking and understocking, while meeting customer demand more effectively.

Inventory management doesn’t have to be overwhelming. By understanding your sales trends, leveraging tools like pre-orders, and maintaining a balanced product mix, you can avoid the common pitfalls of overstocking or understocking. Focus on keeping your process flexible, and you'll meet demand efficiently while protecting your cash flow.