A common challenge for both small and large companies is how to handle inventory problems and solutions. The many processes involved in inventory management mean you need to keep a careful eye on your items.
Otherwise, your products can easily get lost or damaged. Without the right tools and strategy, this task can become even more challenging.
Impacts of inventory management
Inventory management is an essential element for operating a profitable business. In fact, a recent case study concluded that inventory management has a positive and significant relationship with a company’s profitability. It said that 36% of the increase in a company’s profit can be attributed to the improvement in the control and transparency of their inventory management.
On the other hand, poor inventory management can cost your company time and money. Worse, it can even cost you your entire business as well. Without efficient inventory management, you can easily lose track of your stock levels. This can result in either overstocking or understocking.
Both of which could further cause:
- Missed sales
- Lost customers
- Excessive warehousing costs
- Exceeded product’s shelf life (spoilage)
There have been many stories of large corporations losing billions of dollars due to poor inventory management resulting in frequent stockouts. Hence, it is important that you identify what are the factors affecting inventory control to avoid potential issues along the way.
5 Factors leading to inventory inefficiency
1) Lack of proper planning
Inventory management deals with more than just stock levels. It also involves the sourcing, storing, and selling of your products. Hence, it deals with multiple locations, agencies, and processes at once. Each one is interdependent with one another.
When one part encounters an issue, the whole operation can be affected. This can be in the form of delays, liabilities, or stock damages. Failure to plan each step of your inventory management can have detrimental effects on your inventory.
For example, a flower shop failed to plan ahead for Valentine’s Day. As a result, they forgot to increase their orders of flowers in preparation for the event. So when Valentine’s Day finally arrived, they ran out of flowers to sell, and thus, missed out on gaining more profit for that day.
Planning ahead is a crucial element of inventory management. This will allow you to determine whether or not your stock levels are sufficient for the time being.
To help you with your planning, you can hire people with careers in logistics. These are individuals who are responsible for developing and implementing logistics plans which include warehouse management, inventory management, and procurement.
2) Miscommunication and poor coordination
Having a plan is only the first step to an efficient inventory operation. You must also make sure that everyone involved in the process is adequately informed of the plan. This includes your suppliers, vendors, warehouse managers, transporters, and the rest of your employees. Any miscommunication at any part can result in poor coordination among the stakeholders.
Unfortunately, miscommunication and poor coordination are common issues of inventory management in the supply chain. This is especially true when it comes to dealing with your suppliers and vendors.
After all, suppliers and vendors are separate entities from your business. They aren’t as bound to follow your orders compared to your employees. Hence, they can sometimes become unreliable and unpredictable factors in your inventory operation.
It is important that you vet your suppliers and vendors properly. Make sure that you only partner with reliable companies so that you can avoid any conflicts in the long run. This requires you to do your due diligence and research the background of any potential partner companies before you enter into an agreement with them.
3) Failure to monitor
Another factor leading to inefficient inventory management is poor tracking or monitoring. While trust is an important element in maintaining proper coordination with the stakeholders in your inventory operations, it isn’t enough to ensure that everything will go smoothly.
Anything can still happen at any time, especially when you least expect it. It is important that you can immediately act on it before things get worse.
What you need is proper tracking and monitoring of your inventory process. Without it, you might only find out about the issues in your operations when it is too late. By then, the damage would be done, and you have no choice but to pay for the consequences.
Consider investing in inventory management software. One of the benefits of an inventory management system is that it gives you a comprehensive overview of your inventory operations. It informs you of the conditions of your products upon its arrival to the warehouse up until it reaches the shelves.
This way, you are always aware of the whereabouts and conditions of your stocks.
4) Inaccurate forecasting
Your planning is only as good as your forecasting. So when you are dealing with inaccurate data and forecasts, your plan might become ineffective as well. Let’s go back to the previous example with the flower shop.
Knowing that it’s Valentine’s Day is not enough data for you to determine how many flowers to order from your suppliers. You can still end up overstocking or understocking your shop.
But if you have historical data on how much sales you made in the past years during Valentine’s Day, you now have a clearer idea of how much stock you should prepare for that day.
On the other hand, if the historical data itself is inaccurate, then your forecasting will be inaccurate as well. Hence, you still risk overstocking or understocking your flower shop. This can sometimes happen if you only rely on manual data gathering and analysis. Hence, it is important that you invest in reliable data and analytics tools. With better forecasting, you can then set up a more efficient inventory management plan.
5) External and uncontrollable factors
Sometimes, even with all the planning, coordination, and data you have for your inventory operations, you might still encounter some problems. This is mostly due to external factors affecting inventory operations that are beyond human control. This includes the weather, natural calamities, accidents, and minor coincidences which can result in stock damage.
These are factors that nobody can anticipate—even with all the sophisticated analytics and forecasting tools. The best that you can do is to set extra measures as precautions. For example, you can get insurance for your products to minimize the loss in case it gets lost or damaged due to natural causes.
Overcoming the challenges
Managing inventory can be a long and tedious process. With so many factors to consider, it is almost impossible to do everything manually. You need to leverage the right technologies to make sure that everything goes well. What you need is inventory management software.
According to a recent report, demands for inventory management software will reach over $5 billion by 2026 as more businesses embrace digital transformation in their processes. An inventory management software can provide you with tools to improve control and visibility in your inventory operations. This includes:
- Workflow automation
- One-click purchase orders
- Sales order management
- Inventory tracker
- Report generation
Aside from inventory management software, there are other tools you can use as well.
ProfitBooks, for one, is accounting software that can also help you manage your inventory. Its inventory management feature goes hand in hand with invoice and expense tracking so that you can have a more comprehensive overview of your business’ finances.
So go ahead and check it out. It’s free to get started.