Many CPG brands use “inventory planning” and “inventory management” interchangeably.
While they’re connected, they serve distinct purposes. Confusing the two can lead to stockouts, excess inventory, and unnecessary holding costs, all of which are common challenges that directly impact a CPG brand’s cash flow and profitability.
PRO TIP:
Inventory planning helps brands anticipate demand; inventory management ensures operations run smoothly by tracking and managing stock efficiently.
Understanding how they work together is game-changing for CPG operators and founders.
Here, we’ll explain the differences, highlight common mistakes, and explore how inventory tracking and management can improve cash flow.
Inventory Planning vs. Inventory Management: What’s the Difference?
Inventory Planning: The Proactive Approach
Inventory planning involves forecasting demand, coordinating with suppliers, and determining optimal stock levels. However, brands face a common dilemma: when there’s too much inventory, cash flow is tied up, while insufficient inventory leads to lost sales.
Having a forecasting plan in place helps CPG brands:
- Predict inventory needs based on historical sales data and market trends
- Optimize production and procurement schedules to prevent delays
- Free up working capital and avoid tying up cash in excess inventory
Inventory planning is only as effective as the data feeding into it. Without having strong inventory management practices in place first, demand forecasting can be unreliable at best.
Inventory Management: Keeping Operations in Check
Inventory management is the day-to-day execution of tracking, replenishing, and optimizing stock levels. It supports:
- Real-time visibility into inventory across various warehouses and retail locations
- Efficient movement of stock through the supply chain
- Minimized risk of overstocking or running out of in-demand or hero products
CPG brands may struggle to forecast demand accurately and effectively without accurate tracking and real-time inventory insights.
Why Inventory Management Matters for CPG Brands
A strong inventory strategy relies on accurate data from inventory management to keep supply chains efficient and businesses flexible. When done right, it helps brands:
- Improve Demand Forecasting: Using data-driven insights, brands can plan inventory levels more accurately, reducing the risk of stock shortages or overproduction.
- Strengthen Supplier Coordination: Predictive demand forecasting ensures suppliers have the necessary lead time, preventing production delays and last-minute scrambles.
- Support Business Growth: Inventory planning isn’t just about avoiding stockouts; it enables smarter decisions about product launches, seasonal promotions, and expansion.
That said, planning is only part of the equation. Even the best demand forecasts can fall apart without effective inventory tracking and management.
Why Inventory Management is Critical for CPG Success
If inventory planning is the strategy, inventory management is the execution. It directly impacts a brand’s ability to optimize cash flow and prevent expensive mistakes.
Without a system in place to track and manage stock in real-time, brands risk:
- Stockouts leading to lost sales and frustrated customers
- Excess inventory, which increases holding costs and strains working capital
- Inaccurate data, giving teams poor insight into inventory levels and making financial planning harder
An effective inventory management system allows brands to:
- Maintain accurate stock levels across locations and channels
- Replenish inventory efficiently to prevent shortages
- Reduce carrying costs and free up working capital
Automated inventory tracking provides real-time data to improve forecasting. This information ensures that demand forecasting is based on accurate, up-to-date insights.
Common Inventory Mistakes CPG Brands Make
Even well-run CPG and ecommerce brands can experience inventory challenges that disrupt operations and impact profitability. From inaccurate forecasting to inefficient tracking, these missteps can lead to stockouts, excess inventory, or cash flow issues.
Here are some of the most common obstacles CPG brands face:
Relying on Gut Instincts Instead of Data
Without accurate forecasting, brands risk overstocking slow-moving products or underestimating demand for high-performing SKUs. Inaccurate forecasts can also result in stockouts, missed sales, or excess inventory that ties up cash, ultimately squeezing margins.
Poor Communication Between Teams
Finance, operations, and supply chain teams need to work together. Cash flow bottlenecks can arise if finance teams lack visibility into inventory tracking and planning.
Lack of Real-Time Tracking
Manually tracking inventory across multiple locations increases errors and slows down replenishment. Instead of spending time growing the brand, CPG operators get stuck trying to make sense of fragmented data.
Not Leveraging Automation
Outdated spreadsheets and siloed systems make inventory management inefficient and time-consuming. Brands that use automated inventory tracking have better control, clarity, and accuracy in forecasting demand based on real-time (and reliable) data.
How Finance Teams Can Improve Cash Flow Forecasting with Better Inventory Management
Inventory management isn’t just an operational function; it directly impacts cash flow and financial planning.
The more insight finance and operation teams have into inventory data, the better they can forecast working capital needs, plan expenses, and optimize vendor payments.
How Automation Supports Smarter Financial Planning
- Reduces manual errors: Real-time tracking prevents costly miscalculations.
- Improves cash flow forecasting: Finance and operation teams can more accurately anticipate upcoming expenses.
- Optimizes purchase order management: Automating vendor payments and purchase orders prevents supply disruptions.
By integrating automated inventory systems with financial tools, brands gain real-time visibility into stock levels, expenses, and working capital, making data-driven business decisions easier.
Bringing It All Together: A Smarter Approach to Inventory Optimization
Inventory planning and management must work together to create a seamless, efficient supply chain. Founders and operators who prioritize real-time inventory tracking and demand forecasting will be better equipped to:
- Anticipate demand and adjust supply accordingly
- Reduce waste and improve operational efficiency
- Strengthen financial planning and cash flow management
PRO TIP: Technology is the link between execution and forecasting. Automated inventory and financial platforms give brands real-time data to make smarter, more informed inventory decisions.
Data-driven Inventory Management Makes a Difference
CPG brands that struggle to differentiate between inventory planning and management often experience stockouts, excess inventory, and cash flow issues.
However, brands that take a strategic, data-driven approach to inventory tracking and management gain a competitive edge by establishing efficient operations, stronger financial visibility, and (most importantly) sustainable growth.
Settle helps CPG brands connect finance and inventory because inventory is cash. With the right tools, insights, and automation, teams can manage inventory more effectively, improving cash flow and scaling the brand with confidence.
