Many business owners struggle with inventory management since it is one of the most time-consuming and complex aspects of running a company. Businesses that use inefficient inventory management techniques risk losing consumers and revenue due to excessive stock levels, poor management, or overspending on inventory.
If you don't keep track of your customer managed inventory efficiently, you run the risk of your products becoming outmoded, damaged, or lost. It's best to get it addressed as soon as possible because it may be expensive and tougher to fix later.
How Inventory Management Affects Your Business
Inventory management can help ensure that your business operations run smoothly. One case study even shows that having a well-managed inventory directly correlates to profitability. Just seizing control over the way inventory is managed can significantly increase profits by 36%.
An effective inventory management system helps businesses accurately predict their inventory needs and know their stock levels, reducing the likelihood of stock-outs and overstocking. Moreover, it will boost customer trust and relationships since you will be able to complete orders properly and on time.
Here are just a few ways that efficient inventory management can benefit your company:
Reduces Costs
When you don't know how much of your inventory you have and where it's stored, you can end up spending unnecessary resources on warehousing products that aren't selling or on products that are no longer needed.
Proper inventory handling helps reduce costs by allowing companies to make more accurate predictions about future sales volumes and other factors. This is critical because it will enable you to plan ahead and ensure they have just the right supply.
Increases Cash Flow
By keeping track of your inventory levels, you can see what sells quickly and which items are slow movers. That means less money tied up in inventory that isn't moving, and more into growing your business.
Keeps Customers Happy
To stay ahead of your customers, you need to know your inventory moves. You don’t want to be caught having nothing to sell or worse, having too much merchandise that goes bad before it can be sold.
If customers believe your company to be reliable, they will continue to patronize you. This entails having adequate stocks when you say you have them and delivering orders to customers in a timely manner.
Symptoms of Inventory Management Issues
If your company exhibits a number of the following symptoms, it's likely that inefficient inventory management is to blame:
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Losing customers regularly
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Experiencing occasional stockouts
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High inventory and storage expenses
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Low inventory turnover
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Having a large amount of outdated stock
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Recurring mistakes on spreadsheets
Common Inefficient Inventory Management Practices
1) Poor Planning
Poor planning leads to ineffective use of space and resources which ultimately results in high costs and low productivity. When a company does not plan ahead and has limited knowledge about what they need, chances are it will end up buying more or less than necessary for the current season or year. This can result in damaged stocks, lost sales, and delays in the operation.
Eliminating out-of-date or slow-moving stock can help make way for fresh stocks. Additionally, investing in an inventory management system could help minimize the likelihood of human error.
2) Not Vetting Suppliers and Vendors
Coordinating the flow of inventory from suppliers to warehouse managers, vendors and transporters requires a great deal of effort. However, many companies suffer from poor coordination among their suppliers and vendors, which can lead to miscommunication in the inventory management department.
Ideally, your company should vet every single supplier and vendor who enters your supply chain. This helps minimize any inventory management mishaps. Before committing to a vendor, run a background check on them and make sure to check with previous clients for feedback.
Next, create a visual map of your supply chain for logistics with all suppliers to identify any bottlenecks that could slow down your operations.
3) Not Monitoring Inventory Regularly
Businesses are often guilty of not monitoring their stock levels, which can lead to a range of problems from overstocking to understocking. However, even if there is solid structure in place, and everyone does their part, issues may still arise. This is due to the fact that many businesses still rely on paper charts and spreadsheets, which are prone to human error.
The best course of action would be to implement a reliable inventory tracking and monitoring system that would allow you to quickly identify and address any issues. The way to keep track of and keep tabs on your stock levels is to invest in inventory management software.
4) Inaccurate Forecasting
Running an efficient inventory system also depends on your ability to forecast stock trends accurately. However, relying on inaccurate data to make your forecasts will render your plan useless. For instance, even though you know that certain products sell well around the holidays, you can’t predict how much product you need to order unless you have accurate sales data.
On the other hand, if your company has historical data based on past sales, you and your team may make a well-informed estimate as to how much inventory will be sufficient for the season.
4) Being Stuck on Manual Data Collection
Unfortunately, a lot of businesses continue to use Excel spreadsheets or the outdated, manual method of keeping track of inventory with a pen and paper. It's inefficient since it requires a lot of human effort, is naturally slower, and leaves room for mistakes. This also means that you or someone will have to take the huge undertaking of consolidating all this inventory data into one central location. This is extra time and effort that you don’t want to burden yourself or your team with.
One solution could be automation and technology via inventory management software. It will help in automating numerous manual tasks while accurately gathering data that can be utilized in planning and forecasting.
5) Having an Overstocked Warehouse
More space is required as your inventory increases. If you lease your warehouse or stock perishable goods, this could be a significant expense for your company. Additionally, it takes a lot longer to do inventory audits and checks when you have a huge inventory. This means having to hire additional staff or requesting employees to work overtime.
Employing stock management is essential for creating a positive customer experience, but you also need to have some balance. Establish a manageable stock count to prevent holding dead stock in case a trend or sale season ends.
Needing some support with inventory management? Schedule a demo with Luminous today, and let us help!
