For businesses with unclear or fluctuating demand from customers, holding anticipatory inventory can be the only way to ensure timely product delivery. Anticipatory inventory can be defined as the accumulation of excess stock in the anticipation that it is going to be sold due to an increase in demand. This could be seasonal, such as retailers selling snow gear, because of concerns about suspected price increases or product shortages, or ahead of vacation or strike closure.
The aim of anticipatory inventory is to still hold adequate stock to cater for the increase in demand. In terms of reasons for holding inventory, anticipatory inventory is important because of the security it gives businesses who want to maintain their image.
Why is anticipatory inventory important?
Along with many reasons for holding inventory, the purpose of anticipatory inventory is to meet the changing demands of customers. Some businesses may hold anticipatory inventory during high-demand seasons such as Christmas or Halloween, while others may increase stock levels if there are suspected shortages.
For most manufacturers, the most productive way to produce anticipation inventory is to build it up, maintaining consistent operations even during times of low demand. This constant production of excess avoids the rush due to sudden increases in demand and avoids the need to hire additional employees during busy times or decrease staff numbers during times of low demand. This notion of consistent output and a stable workforce is attractive for businesses who value their brand image, not only pleasing customers but also keeping workers happy.
What else needs to be considered?
While anticipatory inventory acts as a buffer to protect businesses from stock outages during increased demand periods, there are consequences behind these reasons for holding inventory. While anticipatory inventory is justified because of expected demand increase, there is no guarantee that products will sell, which can result in excess or unwanted inventory. Because of this, it is important to utilise a sustainable and efficient inventory management system to accurately monitor stock levels and record sales history. This can allow for accurate forecasts to be made in the future, resulting in lower risk of wasted stock. Likewise, inventory management systems can help avoid stock outages because of their forecasting functions that can predict a rise in demand, making it easier to prepare anticipatory inventory.
While there are many reasons for holding inventory to benefit the customer experience, it is important to take into consideration other financial components such as warehouse storage and the costs relating to damaged or misplaced products. Anticipatory inventory will take up valuable storage room, essentially using business assets. Because of this, it is important to ensure the reasons for holding inventory are valid and that forecasting systems are accurate. To avoid product damage or loss, circulating excess inventory among normal production can reduce these storage issues, meaning that products are continuously being delivered to customers according to production date, rather than holding anticipatory inventory separately.
Anticipatory inventory is a valuable tool for businesses experiencing inconsistent demand, offering security and ensuring delivery times to customers. While there are many positive aspects of holding excess inventory, it is also important to be aware of the consequences of extra stock and to cater for the issues that may arise from this.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.