Dreadful Results of Poor Inventory Management

Inventory management was never easy and with the steep increase of online shoppers, it's only going to get tougher.

Poor inventory management can cause a bevy of issues for retailers. A study demonstrated that more than 75 percent of all firms suffer from lost sales due to inadequate inventory control methods.

It can be particularly damaging to a business and its operations, resulting in costly overstocking or understocking. For this reason, it's essential for every company to carefully manage their inventories as it directly affects costs, customer satisfaction, and other vital metrics.

Here are some common symptoms of poor inventory management:

Symptoms of a Poor Inventory Management System

In any industry, warning signs of a lagging inventory management system are quite obvious. If you notice the following indicators, it may be time to reassess your approach:

• Constant stockouts

• Delivering incorrect items to customers

• Dissatisfied customers

• Expensive storage costs

• Higher inventory costs

• Higher working capital

• Large numbers of obsolete inventory

• Lower turnovers

• Prolonged lead times

Although there are multiple elements that can lead to these unfavorable results, any of them may be traced back to your inventory management techniques. But now the questions arises: What leads us down the pathway of inefficient inventory administration?

Common Causes of Poor Inventory Management

Your inventory management could be jeopardized for a variety of factors, and while this list is not exhaustive, here are a few of the most likely causes.

1. Manual Tracking: As your business grows, manual inventory tracking can quickly become a tedious and inefficient task. If you don't stay up-to-date with your inventory, it'll be difficult to keep track of what you have in stock and could lead to costly ordering mistakes. For example, if your inventory manager makes an unfortunate mistake, such as failing to update stock data prior to placing purchase orders, it can lead to a host of issues. You could end up with excess amounts of obsolete inventory or too few supplies leading to stockouts.

2. Using Spreadsheets: Excel/electronic spreadsheets are heavily susceptible to errors. In a study by the Tuck Business School involving 25 sample workbooks, they observed that 15 contained 117 mistakes. While 40% of those blunders had minimal effect on businesses studied in the study, seven caused colossal losses with estimations ranging from $4 million to $110 million according to researchers.

3. Storing High Levels of Inventory: Excessively high inventory levels can cause significant issues for businesses. According to reports, many companies have between 20-40% of their capital tied up in stock - but having too much product on hand than what is necessary will impede your ability to effectively fulfill orders and make a profit. In addition, large inventories often result in more management headaches as well as dead stock that may be difficult to move off the shelves.

4. Inadequate Demand Forecasting: Without access to detailed data such as sales trends, popular products, and consumer behavior - companies are at risk of overestimating their inventory needs. Poor reports and demand forecasting can be the cause for this mistake. Companies can encounter a variety of issues due to inaccurate forecasting, such as an excessive level of finished goods, inadequate inventory levels, and dissatisfied customers.

5 Solutions to Poor Inventory Management

Now that you understand the underlying reasons for your current inventory management issues, let's get down to business and discover how to fix them.

It'd be best to check out our step-by-step guide to successful inventory management and the various inventory management methods you can employ before you implement these solutions.

Streamline Your Pick and Pack Operation for Maximum Efficiency

Optimize your order fulfillment techniques with the effective pick and pack process. Create a system of procedures and tools to help your employees execute customer orders quickly, ensuring satisfaction every time.

1. Arrange your warehouse with the most in-demand items closest to the packing station. By doing so, you'll be able to increase efficiency and reduce time spent on restocking product.
   

2. For a streamlined, productive environment in your warehouse, consistently maintain cleanliness and banish any and all clutter.
   

3. Create and install a Warehouse Management System (WMS) to organize the items in an arrangement that is most efficient for pickers. This will enable them to locate merchandise quickly and accurately, greatly improving overall productivity.
   

4. Ensure that every order is correctly marked and tallied.

5. Implement barcodes and RFIDs on every item

Take Advantage of Batch Tracking

Batch tracking, sometimes referred to as lot tracking, is a process for monitoring goods throughout the supply chain using batch numbers. These batches refer to groups of products that were manufactured simultaneously and with the same materials. Through this system, you can ensure each link in your distribution network remains organized and up-to-date on product information.

To stay ahead of a potential product recall situation, implement an automatic batch tracking system to store crucial information about your products all in one place. With this convenient tool, you'll be able to access these details at any time and keep them close at hand.

Always Have a Safety Stock Inventory

To avoid any financial losses, it is critical to have a safety stock inventory. This reserve of excess products acts as a buffer against unpredictable market trends and longer lead times, helping you retain your customer base and secure your place in the competitive landscape. Without this safeguard, revenue loss can become prevalent along with customer desertion and an overall decrease in market share.

It offers invaluable protection that includes:

• Safeguarding against sudden spikes in demand

• Preventing stockouts

• Compensating for inaccurate market forecasts

• Providing a buffer for longer-than-expected lead times.

Maximize Your Stocktaking Efficiency

Streamlining your stocktaking process is essential to reduce the risk of costly mistakes made by your staff. A well-structured procedure should include all steps needed to work efficiently and be able to spot discrepancies and inaccuracies too. Such a system will also ensure that optimal engagement and focus levels are maintained throughout their workday.

Stocktaking doesn't have to be a lengthy, arduous process. Here are some tips for making it simpler and more efficient:

• Plan out your stocktakes in advance so as not to disrupt daily business operations

• Prioritize tidying up and arranging your storage area before counting inventory

• Have an understanding beforehand of all the items you're checking and how you'll go about doing it

• Open everything up and make sure there's no guesswork involved - accuracy is critical!

Determine Your Inventory Performance Indicators

Inventory KPIs are a powerful tool that can help you reach your goals by giving clear, measurable milestones to hit each week, quarter or year. They offer data-driven insights needed for intelligent and effective business decisions while removing any guesswork from the equation. Use Inventory KPIs to get an accurate understanding of how well your inventory is performing over time - they'll be invaluable in helping you take your company forward.

If you want to successfully manage your inventory, these 6 KPIs are essential:

1. Carrying Costs: Look at the expenses associated with carrying excess stock.

2. Write-offs: Track write-offs and write-downs for accurate financial reporting.

3. Turnover rate: Analyze how quickly product is being sold by calculating Inventory turnover rate

4. Cycle time: Measure cycle time from order placement to delivery of goods or services

5. Order Tracking: Track orders to ensure on-time deliveries

6. Fill rate: Monitor fill rate throughout process for customer satisfaction

Use PayTraQer to Make Your Inventory Accounting Easier and Reduce Inventory Management Errors

Inadequate inventory management can lead to disastrous consequences such as production halts, customer churn, and loss of revenue. The first step to fixing the problem is identifying the symptoms, which include errors in forecasting demand, problems with order fulfillment, and stock-outs.

Once you know the warning signs, you can identify the root causes of your poor inventory management system, which may be due to a lack of communication between departments or insufficient resources.

By implementing some best practices—like utilizing an automated software solution like PayTraQer—you can solve many of these issues and get your business back on track. Don't let poor inventory management bring your business down. Use PayTraQer to make inventory accounting seamless and eradicate poor inventory management for good!