Inventory Management Challenges & Solutions For Small Business Owners

Running a retail business is no easy feat—it takes far more than just stocking up on products. To ensure an efficient operation, the entire supply chain must be managed from obtaining raw materials to distributing finished goods and everything in between.

Warehouses must operate like a well-oiled machine, where tools and vehicles are efficiently working at all times. Furthermore, it's also essential that the items in inventory remain orderly so they can be moved and stored accordingly with utmost timely precision.

Accurate stock numbers are paramount for any business, from franchisees to investors and employees. That's why tracking and managing inventory is so important - companies need to know where their products are in order to ensure the prosperity of their company. Without a system that allows you visibility into your inventory, there's no true understanding of one of the most essential components within your business!

With so many factors, businesses owners are bound to get into challenges while managing inventory. Here are some of the common inventory management challenges.

Inventory Management Challenges

Challenge 1: Estimating Inventory

As a business owner, it is essential to balance the comprehension of both necessary and unnecessary items that need ordering. Necessary items are those which are either in demand or ones that you sell all year-round requiring regular restocking.

Although identifying your key items is the initial step to overcoming such substantial difficulties, you must also comprehend what's in stock, what needs to be purchased, and which products need restocking.

Estimating inventory can be an extremely draining task but it is absolutely essential for maintaining successful business operations.

Challenge 2: Tracking Inventory Manually

For small businesses, manual inventory tracing via a spreadsheet is often their go-to tool when starting up. Nevertheless, if you are managing multiple store locations and still use paper or Excel spreadsheets to trace inventories, then you're likely setting yourself for trouble down the line. Manual practices can easily lead to errors that may cost your business time and money in the long run.

If your inventory management isn't accurate, it can cause huge discrepancies between real-time data and supply levels. Having too much or not enough stock can be an expensive mistake, costing you customer loyalty and satisfaction in the long run. Invariably making sure that manual records are up to date will save money in the future!

Challenge 3: Unorganized Inventory Records

By centralizing inventory items, you benefit from managing your merchandise from a single point of control for all stores. The advantages of this are vast; with just one dashboard to manage reordering, purchasing and receiving processes - instead of switching between multiple platforms - greater efficiency awaits. With more oversight comes improved productivity!

Keeping an organized and accurate inventory record simplifies the process of managing orders across multiple channels, as well as keeping track of current stock levels. Furthermore, having detailed product info and precise stock on hand for each item creates a much better customer experience overall.

Challenge 4: A Lack of Transparency

A staggering 79% of store owners have reported that an absence of transparency is having a major effect on their business' profits, according to IBM. The prudent businesses nowadays are taking steps towards ensuring transparency in all aspects so as to ensure both staff and customers know the current status of any product or item.

Despite utilizing the most cutting-edge inventory management system, delays in order fulfillment may still happen. When customers are kept informed of potential holdups they can modify their outlook and be sure that their product will arrive eventually. Communication is essential to your company's prosperity, so don't overlook notifying shoppers once their item returns into stock again!

Challenge 5: Handling Multiple Warehouses & Channels

When your retail business first begins, you'll likely have a single sales channel and one warehouse to store all of your inventory. However, as your organization expands in size and demand for products grows, it's essential that you add additional channels where customers can purchase goods and multiple warehouses to house the increasing number of items available for sale.

If you're not leveraging warehouse inventory management or more comprehensive inventory management software, it's unsurprising that tracking what you've sold across multiple platforms (e.g., Shopify, eBay, Amazon) and keeping up with how much stock is remaining and when to restock can be a struggle.

To properly manage multiple warehouses processing orders, a reliable online inventory system is essential for tracking stock levels at each warehouse. Without proper monitoring, it can be hard to keep up with the amount of inventory available in different locations.

Challenge 6: Overstocking and Overselling

Negative consequences such as overstocking and overselling make inventory management an intimidating task for many retail and e-commerce business owners. These difficulties are often encountered in various forms, creating a major headache for merchants who need to stay on top of their stock levels.

Overselling is dangerous because it means selling the same item to more than one customer, while overstocking can prove costly due to storage expenses. Both present risks; however, overselling poses a greater threat when it comes to preserving your customers' satisfaction levels.

To maintain a successful business, it is crucial to avoid overstocking and overselling all year round. However, this restriction becomes even more important during peak or slow seasons when the risk of losses due to mismanagement are higher. For instance, if you don’t have enough items in stock for Black Friday sales - your profits could take an unexpected hit! Similarly, stocking up too much inventory during a low period can also be detrimental to your bottom line.

Challenge 7: Lacking Insights into Inventory Data

Having the ability to access your inventory data is only the start of making successful use of that information. To truly understand and maximize its potential, you must go further.

For instance, being cognizant of the amount of a certain item you have stored is beneficial, but having knowledge on its shifting availability over time across channels and warehouses can be incredibly advantageous. Having insight into your business's data allows you to identify e-commerce trends or seize limited-time opportunities quickly; these are only two ways that understanding deep insights into your company’s information pays off substantially.

Inventory management solutions

If you're feeling overwhelmed by all the inventory management issues that come with running a retail or online business, don't worry! Utilize these easy-to-use solutions to guarantee your business is operating at peak efficiency.

Solution 1: Obtain a warehouse by either leasing or purchasing it.

It is commonplace for retail and e-commerce businesses to pay third parties and have no control over the operational procedures of their inventories, which can be a hindrance as they are unable to efficiently fix any discrepancies that may arise. But if you were able to rent or even own your warehouse space, then you would possess full supervision regarding inventory management - it's true what they say; If you want something done correctly, do it yourself!

Solution 2: Dropshipping can be an better option

Dropshipping is a good stock management solution for business owners who don't or prefer not to own their own warehouses. Last year, this global dropshipping market was valued at an incredible $102.2 billion – a true testament to its immense popularity in e-commerce activities.

The dropshipping e-commerce model is straightforward - the retailer markets and advertises products, processes orders promptly, and attends to customer service while the supplier takes care of production, storage, packing & shipping. Who needs inventory management best practices when you can completely avoid storing it?

Solution 3: Adapt to seasonal changes

Many people typically associate seasonal businesses to service-based endeavors like pool cleaning or landscaping, but online stores also face their own annual fluctuations. Luckily for them, they have more leeway in managing their inventory than some traditional brick and mortar stores. By taking advantage of this flexibility, online retailers can ensure a healthy running business throughout the year.

For e-commerce businesses, you don't need to keep your shelves stocked for visual appeal. This allows you to have a smaller inventory during off-peak seasons and quickly restock when business starts booming again in order to meet the ever increasing demand.

Adapting your product offerings to suit seasonal trends is also an effective practice. For instance, in the summertime months you might restock with items such as grills, hammocks and outdoor furniture if you offer home goods. Come wintertime, it'd be wise to replenish those supplies with area heaters, weighted blankets and other products like shovels that will fit the season's needs.

Solution 4: Apply the ‘first in first out’ accounting method

Utilizing a first in, first out strategy when it comes to inventory management can be beneficial for any business. Especially with perishable items, making sure older stock is sold off before new products hit the shelves ensures freshness and quality of your wares. But even if you are selling non-perishables such as apparel or accessories, this technique still has its advantages by ensuring that current trends are always available to customers no matter what season they're shopping in.

You'll benefit greatly if you promote winter clothing while the weather remains chilly, because in May very few people will have an interest in buying a thick winter coat. Similarly, shoppers won't be searching for swimwear during December. Keep promoting items that are appropriate to the season - strike when the iron is hot!

By utilizing this system, you can prevent the buildup of stale inventory and all the costs that accompany it: storage charges, deterioration from aging products, pressure on your online stock tracking system - to name a few.

Solution 5: Use technology to improve operations

Harness the power of technology by using inventory management software, and you can free yourself from a lot of time-consuming work. The online system will do all the hard math for you, making your life much easier while it decreases your stress levels.

If you have physical stores, then the most effective way to address this issue is by using automated inventory management software that works in tandem with your POS Software. This ideal solution should provide real-time tracking of your stock levels, alerting you when stocks are low so that reorder levels can quickly be reached and purchase orders generated instantly. Furthermore, performing regular inventory counts will ensure nothing slips through the cracks!