In the world of inventory management all mistakes are costly. Errors throughout a business’ supply chain almost always filter down to place unnecessary burden on the bottom line.
For any operations manager, it is extremely important to be aware of the common mistakes to look out for when overseeing inventory as well as to know how to prevent them from occurring in the first place.
Mistake #1 – Falling out of alignment with demand
Accurate customer demand forecasting is the Achilles heel in many inventory management operations. Whilst there is no foolproof way to predict fluctuations in demand with pinpoint precision, it is possible to do so with a competent degree of accuracy. When forecasters have to rely on outdated data, thanks to a reliance on spreadsheets or end of year stock counts, the likelihood of inaccurate re-ordering rises significantly.
When this occurs, a business will not stock enough of what their customers want to buy. The short-term impact will be felt in lost sales. The longer term – and potentially far more damaging effect – will be a diminished loyal customer base. If your business cannot give your customers what they want then they will just go elsewhere.
Conversely, when a business over-predicts its inventory needs for the coming sales cycle, it runs the risk of ordering-in and building up inventory that is actually not needed. Apart from the ‘hidden’ cost of holding on to obsolete stock, the paralyzing effect overstock has on a business’s cash flow is something all operations managers seek to avoid at all costs.
One solution is to set automatic re-order points informed by current, real-time data. Re-order points are simply intervals within the purchasing timeline of a business that allow for minimum and maximum levels of inventory to be set. This way, a business will always know when inventory is approaching the point of overstock or under stock, and timely re-supply can be arranged.
An integrated inventory management software system will aid in ensuring that a business has the right amount of inventory in stock, not just at present, but also for the weeks ahead.
Mistake #2 – Coupling sophisticated new inventory management software with untrained staff
Because inventory is such an important asset, one would assume that most businesses would understand the importance of ensuring that those managing it would be trained to the highest standard.
The all-too-common reality however, is that many businesses practice near-sighted decision making when it comes to investing in their staff. Those decision makers that adopt a DIY approach to instructing their inventory managers on how to use new and sophisticated inventory management software systems are holding back the company’s capacity to operate fluidly and efficiently.
It is always the smarter move to invest in your people. When your team is able to utilize the full power of the technology at their fingertips, the effects on the ground and on the bottom line will be very noticeable.
Mistake #3 – Disorganization in the warehouse
Disorganization is the enemy of productivity and efficiency. There is a big difference between having a warehouse that just functions, and one that performs optimally. Warehouse management is an often-overlooked pitfall in the distribution process, and seemingly innocuous mistakes – like poorly labeled storage areas – can lead to a huge amount of time wasted.
Time is money in the distribution business. If your staff constantly have to zigzag across the warehouse in search of poorly labeled and incorrectly stored items, the losses accrued over time can be punishing.
Stick to a simple, clearly marked storage and labeling system. Dedicate areas closest to the loading bays to products that are most in demand, and that need to be picked most frequently. Foster effective and data-driven communication between departments, so that every process within your distribution channel – from purchasing to sales – are all operating from the same page, utilizing accurate, real-time data.
While there is no foolproof defense against all the problems that can and will assail your inventory process, ensuring that you guard against the three major pitfalls outlined above will help you remain in a proactive management position.
Driving your business forward profitably will depend on how well you can utilize both your trained personnel, and the inventory management software at your disposal.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.