How To Calculate The Proper Packaging Inventory For Today's Climate
Sustaining the proper packaging inventory was a challenge before the pandemic. But, in our post-modern world, things have only become more complex.
In addition to the event mentioned above, various other major supply chain disruptions have occurred over the past few years.
From the Ever Given container ship disaster to the continual and increasing costs of goods due to the war in Ukraine, managing the proper levels of packaging materials inventory has become a more significant and dynamic responsibility.
But, what is the proper level of packaging inventory for today's climate? How do you decide what the appropriate level of inventory is?
Where can you turn for help when trying to figure out these problems while maintaining the required inventory to keep your business running?
Below, we will explore these questions and the answers to them. With the information here, you will have the tools necessary to implement the proper packaging inventory levels.
Supply Chain Problems Compound Packaging Inventory Issues
Before the geopolitical conflicts in Ukraine began, there were already problems with the global supply chain.
But, with the continued conflicts happening at the hands of Russia, these problems will likely get worse before they improve.
To plan your packaging materials inventory properly, you need to consider these problems and how to approach them.
However, the supply chain issues we face today will be further compounded by other unintended consequences that have resulted as a byproduct of the pandemic, war, and ongoing petroleum industry disruptions.
We will explore these unintended consequences in the next section.
Packaging Inventory Will Be Affected By Material Shortages
Your current packaging vendor has a network of clients that they usually support. As supply chain problems become more complicated, your vendor is now getting materials purchase requests from other packaging vendors who cannot meet their client's needs.
For example, let's say your current vendor has 100 customers.
Due to decreasing raw materials availability (and the availability of packaging supplies made from those materials) in the plastic resin markets, your vendor is now supporting other packaging companies looking to purchase materials to support their customers.
Now, your packaging company has 150 clients. This is because the number of other packaging vendors who need these materials is expanding.
And these vendors are turning to your packaging vendor in an attempt to source the materials they need to serve their clients.
As such, the amount of inventory that you need to have on hand today is very different from what it was a few years ago.
But, how do you calculate how much packaging inventory is required for today's ever-changing climate?
Looking to stock up on the appropriate shrink film for your inventory?
How To Calculate Today's Required Packaging Inventory
In order to calculate how much inventory will be required to keep your business running, you will have to do a bit of math.
To simplify this process, we have provided a formula below.
This formula can be used to determine the necessary levels of packaging materials inventory you should have in stock to keep business running as usual.
Daily Demand + Safety Stock x Lead Time = The Required Minimum Packaging Materials Inventory Level.
So, if your daily demand is 100 widgets and your safety stock is 5 extra widgets every day, you will need 105 widgets on-site per day.
If your lead time is 30 days, that means that you always want to have 3,150 widgets on site. This will allow you to run for 30 days until your next order comes in.
In today's climate, you want to take your lead time and multiply it by 1.5. This will give you an additional buffer to help with any supply chain issues that are currently happening.
But we are not done yet! Now it is time to take a look at your most critical components. The items that you absolutely cannot run out of.
Identify Critical Components For Packaging Inventory
To ensure that you have the proper packaging inventory on-site at all times, you will need to identify critical components.
These are things that, if you run out of or are delayed, will shut down your production. With these items, you will want to go 2x the lead time to ensure you have an abundance of inventory.
This will likely cause space issues in your warehouse, which may lead to unwanted headaches, but having to deal with these headaches is a better tradeoff when compared to unwanted downtime.
Finally, you will want to add in an additional waste factor while continued labor and supply chain issues evolve.
During these times, you may find the quality of goods that you are getting going down. For this reason, you will need to factor these items into your calculations to compensate for their presence.
Who Can Help You With Packaging Inventory?
With the information above, you should be able to calculate your required packaging inventory to keep business running as usual.
But, where can you source packaging materials that you are having trouble getting elsewhere? Who can help you optimize your packaging inventory and ensure that you have all the materials you need?
If you would like some assistance in ensuring that you have the proper inventory of all the packaging materials that you need to run your business, please consider speaking with a packaging expert.
They will be able to help you source all the packaging materials that you need to make sure that you have the appropriate packaging inventory for today's climate!
About Nathan Dube
As the Digital Marketing Specialist at Industrial Packaging, I am honored to create content for such a phenomenal company and work with one of the greatest teams in the Packaging Industry. Whether creating a video, writing blog posts or generating other pieces of content and multimedia, I am always excited to help educate and inspire our prospects and clients to reach their highest potential in regards to their packaging processes and needs.